Base metals mostly up, trading cautious ahead of US jobs data

Base metals were mostly higher on Friday morning on the LME although investors are largely sidelined ahead of this afternoon’s US jobs report.

An upbeat Chinese PMI and a fall in the dollar after a surprise contraction in the US manufacturing sector had buoyed prices on Thursday, with zinc, tin, and lead hit fresh 2016 highs.

Today, investors will focus on the much-awaited US jobs report. The market expects August’s non-farm employment change at 186,000.

Any deviation from the consensus could trigger sharp changes in the expected path of the federal funds rate and boost volatility across metals prices, FastMarkets analyst Boris Mikanikrezai noted.

“A stronger US labour market isn’t necessarily new ‘news’ for the Fed or its watchers, as it has been pretty solid for some years now,” ANZ noted.

“The worry for some Fed officials remains an absence of a generalised pickup in inflation. Thus a relatively large outturn relative to expectations, along with more evidence of a pickup in wages, is probably needed to get the market thinking of a near-term hike from the Fed,” the bank added.

The likelihood of the Fed raising rates in September has risen to 27 percent from 20 percent at the start of the week, according to the CME FedWatch tool.

“We still believe there will not be any rate hike in September. Theoretically, strong jobs data today could potentially push the Fed to finally raise rates. Also, to rebuild its damaged credibility, the Fed now needs to communicate and deliver concrete direction to the public about its policy objectives,” Swissquote said.

As well, a G20 meeting is taking place this weekend in China but it is likely to have limited market impact, market participants noted.

In the metals, copper recently traded at $4,629 per tonne, down just $1. Volumes are subdued – only around 4,000 lots have changed hands on Select so far.

Stocks rose for the ninth consecutive day, up a net 13,725 tonnes at 318,500 tonnes. Again, the move was centred on Asia – Port Klang inventories rose 12,650 tonnes to 28,925 tonnes and Gwangyang 1,250 tonnes to 46,700 tonnes. Cancelled warrants were up 1,175 tonnes to 40,150 tonnes.

Aluminium at $1,610 was down $5. Yesterday, the metal dropped below $1,600 on worries about oversupply. Stocks fell 6,975 tonnes to 2,220,425 tonnes while cancelled warrants jumped 23,250 tonnes to 915,525 tonnes – a move centred on Singapore.

Nickel at $9,955 was $45 higher. Earlier this morning it broke above the key $10,000 level. Stocks fell 666 tonnes to 368,430 tonnes while cancelled warrants increased 2,232 tonnes to 112,458 tonnes.

Zinc at $2,343 was up $5. Tightness remains a feature – the benchmark cash/threes was last at a backwardation of $5. Both stocks and cancelled warrants were down 575 tonnes to 450,525 tonnes and 21,600 tonnes respectively.

Lead at $1,939 was up $9, with stocks unchanged at 187,275 tonnes.

Tin recently traded at $19,255, up $105; stocks were unchanged at 4,460 tonnes. Its cash/threes was last at $15 backwardation.

Steel billet, cobalt and molybdenum were neglected.

(Editing by Mark Shaw)