- Tuesday's drop in the ISM services purchasing managers index (PMI) to 60.1, from 64, was partly blamed for the day’s weaker markets...
- ...as was the jump in the US Dollar Index
LME three-month base metals prices were up by an average of 0.8% on Wednesday, led by a 1.4% gain in copper to $9,336.50 per tonne, but this upturn followed average losses across the complex of 1.2% on Tuesday, when only lead was able to hold on to any gains. Early trading on Tuesday suggested copper prices had broken higher, but yesterday’s weakness calls that into question. That said, yesterday’s weakness does seem to have run into dip buying and, overall, the metals seem to be holding up well.
The most-active base metals on the Shanghai Futures Exchange were mixed this morning, with the August contracts for copper, aluminium, nickel and tin were down by an average of 1.2% (suggesting they were reacting to Tuesday’s weakness on the LME), while August lead and zinc are bucking the trend with gains of 0.6% and 0.5%. August copper was down by 1.1% this morning at 68,950 yuan ($10,660) per tonne.
While the base metals were generally lower, October rebar was up by 2.8% and the September iron ore price on the Dalian Commodity Exchange was up by 0.9%.
Spot precious metals were higher across the board with gains averaging 0.8%; spot gold was up by 0.5% at $1,803.82 per oz.
The yield on US 10-year treasuries has fallen further, it was recently at 1.34%, down from 1.44% at a similar time on Tuesday. It's not clear whether this is a sign of a pick-up in haven demand, or just that the market is confident that the United States Federal Reserve is not going to rock the boat. Perhaps the market is nervous in case the US Fed is seen to be more hawkish and that weighs on equity markets - we should get an update on that when the minutes of the Fed’s latest Federal Open Market Committee (FOMC) meeting are released this evening.
Asia-Pacific equities were mixed on Wednesday: the Nikkei (-0.96%), the Kospi (-0.6%), the Hang Seng (-0.5%), the ASX 200 (+0.9%) and the CSI 300 (+1.13%).
The US Dollar Index jumped higher on Tuesday and was recently at 95.52, after a low yesterday of 92. The rebound suggests the dollar strength that was seen in June may have further to run, with recent weakness just a pause. If so, this could be a headwind for the metals. Although the next direction is likely to depend on what the Fed’s minutes reveal.
Most major currencies were on a back foot on Wednesday morning: the Australian dollar (0.7510), the euro (1.1825) and sterling (1.3802), while the Japanese yen (110.62) was generally strong.
Economic data already out on Wednesday showed Japan’s leading indicators fell to 102.6% in May, from 103.8% in April, German industrial production fell by 0.3% in May, it was expected to rise by 0.5% and Italian retail sales climbed by 0.2% in May, having been expected to rise by 3.1%.
Later there is United States data on job openings, and economic optimism.
In addition, the EU will release its economic forecast and the US Fed will release the minutes from its recent FOMC meeting, with committee member Raphael Bostic scheduled to speak.
Wednesday's key themes and views
On Tuesday, we said the metals were looking more upbeat because copper had broken higher, but given the weakness seen yesterday the market looks a bit flighty, so we will wait to see if the dip buying pushes copper back above $9,550-9,600 per tonne. If it does, then things will look more bullish again. Given this is the summer slowdown in the northern hemisphere, any such move is likely to be led by investors - unless the spread of the Delta variant of Covid-19 increases the threats to mine supplies or logistics, which could prompt restocking.
Gold prices have broken out of their consolidation pattern and also seem to have a tailwind, which is impressive given the stronger dollar - so maybe haven demand is on the up?