Base metals experienced strong selling pressure with renewed vigor on Monday, after a temporary pause last Friday. While the catalyst likely was the meltdown in Chinese equities, which was partly caused by tighter margin trading requirements as well as the release of disappointing Chinese data last week, weakness in the complex also seems to be attributable to investor concerns about the US monetary policy normalisation, with the Federal Reserve holding a two-day meeting today and tomorrow, where the FOMC is expected to provide further details regarding the plans for policy normalisation. Against this backdrop, nickel was the worst performing base metal (-3.2 percent), followed by copper and zinc (-1.4 percent each), and lead (-1.1 percent). While aluminium was broadly unchanged (-0.1 percent), tin continued to surge higher (+1.0 percent), partly reflecting a downward trend in LME inventories and a sustainable return to backwardation at the front end of the forward curve.
Precious metals continued to trade sideways to lower amid a volatile session despite a lower US dollar as market participants were not likely inclined to trade the complex with a high level of conviction ahead of the 28-29 July FOMC meeting, although investor sentiment toward precious metals remains strongly bearish, as reflected by the ongoing deterioration in the spec positioning. Palladium was the worst performing precious metal (down 1.6 percent), followed by silver and platinum (down 0.5 percent each), and gold (down 0.4 percent).
This morning, base metals are slightly up amid thin volumes, posting an average of 0.7 percent, with nickel performing the most (+1.8 percent). Tin is up 0.9 percent, copper is up 0.6 percent, zinc is up 0.5 percent, lead is up 0.4 percent, while aluminium remains flat (+0.2 percent). Precious metals also are pushing higher, with palladium up 0.8 percent, silver up 0.6 percent, while gold and platinum are about unchanged.
In Shanghai, the July base metals contracts are marginally weaker, with nickel leading the decline (-0.8 percent). While copper and zinc are down 0.4 percent and 0.1 percent respectively, the rest of the complex is up, with lead up 0.3 percent, tin up 0.2 percent, and aluminium up 0.1 percent.
Meanwhile, spot copper in Changjiang is up down 0.8 percent at Rmb 38,850-39,050, while the backwardation with the futures is at $87 per tonne and the LME/Shanghai copper arb ratio is up from yesterday at 1 to 7.92, indicating that the arb window is now open to most traders. In the precious metals complex, gold and silver are broadly flat, up 0.1 percent and 0.2 percent, respectively.
Bonds – US government bonds started the week on a firmer tone, as the latest rout in Chinese equities stoked renewed fears regarding the health of the Chinese economy, which prompted investors to seek safe-haven assets, such as government bonds. The US 10-year yield was down 3.59 basis points (or 1.59 percent) to 2.2265 percent. On the other hand, European government bonds were mixed, in part driven by better-than-expected German data pointing, to an improved business situation in July. While Germany 10-year yield remained about unchanged at 0.691 percent, the France 10-year yield closed up 0.8 basis points (or 0.83 percent) at 0.975 percent, and the Portugal 10-year yield ended up 2.2 basis points (or 0.88 percent) at 2.532 percent.
Stocks- Broad equities sold off quite sharply on Monday as the renewed sell-off in Asian equities rippled rapidly across the global equity market. While the Shanghai Composite Index closed down 8.5 percent yesterday, recording its biggest daily decline since February 2007, in part triggered by tighter margin trading requirements, European and US equities also witnessed sharp losses, reflecting a shaken sentiment among investors, ahead of the July FOMC meeting. The Euro Stoxx 50 ended 2.41 percent down at 3,513 while the Dow Jones closed 0.73 percent down at 17,440. In Asia this morning, equities are struggling to rebound from their lows. The Nikkei 225 is down 0.03 percent, the Hang Seng is up 1.19 percent following sharp losses yesterday, the CSI 300 continues to trend lower, down 0.42 percent, while the Kospi is slightly up 0.12 percent.
Currencies – The US dollar consolidated against most currencies yesterday, most notably against the euro, with EURUSD breaking above the $1.11 mark, and the yen, with USDJPY down about 50 pips, as the sell-off in Asian equities likely triggered an unwinding of the yen and the euro carry trades (implying covering of open short positions in euro and yen), resulting in a sharp appreciation of these so called key funding currencies. The greenback also depreciated against the sterling but strengthened against most emerging market (EM) currencies, such as the Chinese yuan, the Russian rubble, the South African rand, and the Mexican peso.
The economic agenda is relatively light today and US-centric. Economic data published later today will include the S&P/Case-Shiller 20-City composite Home Price Index (HPI) for May, the flash services PMI, the Conference Board (CB) consumer confidence, and the Richmond manufacturing index for July.
In line with our expectations, the short-term risks to the base metals complex were skewed to the downside, reflecting investor concerns about the health of the Chinese economy. The bottoming-out process starting early in July proved to be short-lived for copper and aluminium, which are likely to reach new 2015 lows this week. While lead, zinc, and nickel also are vulnerable to further downside in the short-term, the tin price action is surprisingly strong, suggesting that market participants are revisiting positively their assumptions regarding the forward fundamentals of the metal.
The precious metals complex is likely to trade sideways until the release of the July FOMC statement on July 29. Precious metals will likely continue to be influenced by the vagaries of the US dollar. That said, given the FOMC monetary policy decision is likely to be in line with market expectations (i.e. no increase in the federal funds rate at the July meeting), the trajectory of the US dollar will likely be impacted by developments in the Chinese stock market. Should the sell-off in equities intensify, the US dollar could push lower, partly triggered by the unwinding of the yen and euro carry trades, which in turn could provide some support to the complex.
| BST | 06:07 | +/- | +/- % | Lots |
| Cu | 5227 | 30.5 | 0.6% | 1876 |
| Al | 1646 | 3 | 0.2% | 271 |
| Ni | 11175 | 195 | 1.8% | 760 |
| Zn | 1941 | 10 | 0.5% | 580 |
| Pb | 1710.5 | 6.5 | 0.4% | 107 |
| Sn | 15740 | 140 | 0.9% | 68 |
| Steel | 300 | 0 | 0.0% | Total |
| Average (BM ex-Steel) | 0.7% | 3,662 | ||
| Gold | 1095.8 | 2 | 0.2% | |
| Silver | 14.64 | 0.09 | 0.6% | |
| Platinum | 981.5 | 1.5 | 0.2% | |
| Palladium | 617 | 5 | 0.8% | |
| Average PM | 0.4% | |||
| SHFE Prices 6:07 BST | Change | % Change | |
| Cu | 38310 | -140 | -0.4% |
| AL | 12305 | 10 | 0.1% |
| Zn | 14855 | -10 | -0.1% |
| Pb | 12825 | 35 | 0.3% |
| Ni | 83150 | -640 | -0.8% |
| Sn | 109500 | 220 | 0.2% |
| Average change (base metals) | 236.5 | -0.1% | |
| Rebar | 2085 | 9 | 0.4% |
| Au | 221.15 | 0.3 | 0.1% |
| Ag | 3217 | 8 | 0.2% |
| Economic Agenda | |||||
| BST | Country | Data | ACTUAL | Expected | Previous |
| 02:00pm | US | S&P/CS Composite-20 HPI y/y | 5.2% | 4.9% | |
| 02:45pm | US | Flash Services PMI | 55.1 | 54.8 | |
| 03:00pm | US | CB Consumer Confidence | 100.1 | 101.4 | |
| 03:00pm | US | Richmond Manufacturing Index | 6 | 6 | |
The post Metals under pressure amid investor concerns about growth in China appeared first on The Bullion Desk.
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