After a strong performance on Monday that saw average gains of 2.6 percent on base metals and 2.1 percent on precious metals, the rallies have halted, or at least paused, following China’s devaluation of the yuan by 1.9 percent. The yuan fell to 6.3518 from around 6.2098. This will make China’s imports more expensive, while making China’s exports cheaper.
Precious metals are off an average of 0.4 percent with platinum off just 0.2 percent at $979.90 and silver down 0.6 percent at $15.18, while gold is off 0.4 percent at $1,099.10. With China devaluing the currency – it may well be that Chinese investors have a rethink about buying gold again.
The base metals are lower by an average of 0.9 percent, led by 1.3 percent losses in nickel and zinc, while copper is off 0.9 percent at $5,252. Volume has shot higher with 15,394 lots traded. The weaker yuan no doubt lifting SHFE prices and LME prices in yuan, which has prompted a selling opportunity.
In Shanghai, copper has led the base metals higher with a 3.2 percent gain to Rmb 39,220, the rest are up between 0.8 and 1.1 percent – see table below. The LME’s gains yesterday and devalued yuan boosting local prices.
Precious metals in Shanghai are also up strongly with silver up 3.6 percent and copper up 2.2 percent.
Equities were bullish yesterday on the back of a rebound in oil prices, stronger Chinese equities and on US M&A activity, which saw the Euro Stoxx 50 close up one percent and the Dow close up 1.4 percent. Asia has been more mixed, with some rattled by China’s devaluation. The Nikkei is off 0.7 percent, the Hang Seng is up 0.8 percent, the CSI 300 is down 0.6 percent and the Kospi is off 0.5 percent.
Currencies – the dollar index dipped yesterday to a low of 97.03, but it has since rebounded to 97.52, the euro is last at 1.0970, sterling is at 1.5570, the aussie has given back yesterday’s gains on the back of China’s decision, it is last 0.7322 after 0.7439, the rouble is firmer at 62.68 and the yuan is still weakening, last at 6.3691.
The economic agenda is busy, China’s new loans jumped to 1.48 trillion yuan from 1.28 trillion yuan and money supply expanded more than expected too. Data out later includes: German WPI, Japanese machine tool orders, German and EU ZEW economic sentiment, US small business index, non-farm productivity, unit labor costs and wholesale inventories – see table below for more details.
The run higher in the metals yesterday was viewed by many as a dead-cat bounce and today’s Chinese devaluation appears to be bringing that about. The devaluation may well help kick-start China’s export industries and its economy in general, which could support demand for metals – although globally it is a zero-sum game. The danger is it encourages more currency wars, especially in Asia that could undermine confidence in the region. In the short term, we feel China’s move has poured cold water on yesterday’s stronger tone and we would now expect consolidation as the market digests the news. That said, the better new loans and money supply data, should be supportive and generally a stronger Chinese economy should be good for metal demand.
The dollar has strengthened slightly on the back of the devaluation, this may well provide a headwind for gold prices initially, but the uncertainty it produces in the currency markets may be supportive for gold.
| Overnight Performance | ||||
| BST | 06:10: | +/- | +/- % | Lots |
| Cu | 5252 | -46.5 | -0.9% | 6344 |
| Al | 1602 | -10 | -0.6% | 1425 |
| Ni | 11035 | -145 | -1.3% | 2406 |
| Zn | 1870 | -25 | -1.3% | 4710 |
| Pb | 1741.5 | -15 | -0.9% | 507 |
| Sn | 15600 | -100 | -0.6% | 2 |
| Steel | 300 | 0 | 0.0% | Total |
| Average (BM ex-Steel) | -0.9% | 15394 | ||
| Gold | 1099.1 | -4.9 | -0.4% | |
| Silver | 15.18 | -0.09 | -0.6% | |
| Platinum | 979.9 | -2.1 | -0.2% | |
| Palladium | 605.9 | -2.1 | -0.3% | |
| Average PM | -0.4% | |||
| SHFE Prices 6:12 BST | Change | % Change | |
| Cu | 39220 | 1230 | 3.2% |
| AL | 12070 | 105 | 0.9% |
| Zn | 14695 | 165 | 1.1% |
| Pb | 13170 | 110 | 0.8% |
| Ni | 83000 | 800 | 1.0% |
| Sn | 108860 | 1040 | 1.0% |
| Average change (base metals) | 236.5 | 1.3% | |
| Rebar | 2091 | 50 | 2.4% |
| Au | 226.1 | 4.9 | 2.2% |
| Ag | 3364 | 117 | 3.6% |
| Economic Agenda | |||||
| BST | Country | Data | ACTUAL | Expected | Previous |
| 12:01am | UK | BRC Retail Sales Monitor y/y | 1.2% | 1.8% | |
| 12:50am | Japan | M2 Money Stock y/y | 4.1% | 3.9% | 3.9% |
| 1:30am | China | New Loans | 1480B | 725B | 1279B |
| 1:30am | China | M2 Money Supply y/y | 13.3% | 11.7% | 11.8% |
| 4:45am | Japan | 30-y Bond Auction | 1.44|3.3 | 1.43|2.2 | |
| 7:00am | Germany | German WPI m/m | 0.2% | -0.2% | |
| 7:00am | Japan | Prelim Machine Tool Orders y/y | 6.6% | ||
| 10:00am | Germany | German ZEW Economic Sentiment | 31.7 | 29.7 | |
| 10:00am | EU | ZEW Economic Sentiment | 43.9 | 42.7 | |
| 11:00am | US | NFIB Small Business Index | 95.4 | 94.1 | |
| 1:30pm | US | Prelim Unit Labor Costs q/q | 0.0% | 6.7% | |
| 1:30pm | US | Prelim Nonfarm Productivity q/q | 1.6% | -3.1% | |
| 2:30pm | UK | CB Leading Index m/m | -0.4% | ||
| 3:00pm | US | Wholesale Inventories m/m | 0.4% | 0.8% | |
The post Gold’s rally pauses as China devalues the yuan appeared first on The Bullion Desk.
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