Metals react bullishly to poor US data, but better Chinese data needed

The base metals put in strong performances on Friday following the release of worse than expected US non-farm employment change data which knocked the dollar lower and lifted metals prices. The base metals closed up an average of 1.2 percent, with copper finally taking a lead with a 1.9 percent rise to $4,683, most of the rest were up between 1.0 and 1.7 percent, with aluminium the laggard, closing up just 0.2 percent. Precious metals were up even more, they closed with average gains of three percent, led by a 4.2 percent rise in palladium, while gold prices closed up three percent at $1,244, silver was up 2.7 percent and platinum was up 2.1 percent.

This morning the base metals are up an average of one percent, led by a 1.8 percent rise in nickel. Aluminium is again lagging with a 0.3 percent rise, while the rest are up between 0.9 and 1.1 percent. Volume has been strong with 7,336 lots traded. The precious metals are consolidating, silver is up 0.3 percent at $16.42, while the rest are off between 0.1 and 02 percent with gold prices last at $1,241.60.

In Shanghai, the base metals are up an average of 1.3 percent, aluminium is bucking the trend with a 0.4 percent decline, copper leads the advance with a 2.3 percent rise to Rmb 36,240, nickel is up 2.2 percent and zinc is up two percent. Spot copper in Changjiang is up two percent at Rmb 36,200-36,350, the spread is in a small backwardation equivalent to $17 per tonne, while the LME/Shanghai copper arb ratio is at 7.67.

In other metals in China, iron ore prices are up 3.6 percent on the Dalian Commodity Exchange at Rmb 360 per tonne, steel rebar futures are up 4.8 percent, while gold and silver prices are up an average of 2.2 percent. Brent crude oil prices are up 0.4 percent at $50.02.

Equities struggled with the US data and the impact on currencies, the Euro Stoxx 50 closed down 1.2 percent, while the Dow closed off 0.2 percent and this morning Asia is mixed with the Nikkei off 0.7 percent, the Hang Seng is down 0.2 percent, the CSI 300 is off 0.4 percent, the ASX 200 is up 0.7 percent and the Kospi is little changed.

In FX, Friday’s US data knocked the wind out of the dollar’s sails with the index falling to 93.87, from 95.63, it is last 94.21. The euro surged, last at 1.1344, as did the yen, last at 107.00 and the aussie at 0.7332, while sterling initially rallied to a high of 1.4581, but has since dropped to 1.4383 as a poll on Brexit showed more ‘leavers’ the ‘remainers’.

The yuan is firmer at 6.5668 as are all the emerging market currencies as a delayed US rate rise will also delay them having to pay higher interest rates on their US debt.

On the economic agenda today, Germany factory orders dropped two percent, they were expected to drop 0.4 percent, later data is out on EU retail PMI, Sentix investor confidence, US labor market conditions and at 5:30 BST Fed Chair Janet Yellen speaks – see table below for more details.

The base metals are for the most part pushing higher, suggesting the corrections have run their course after the January –April/May rallies, but zinc is the only metal to have broken higher yet. Aluminium is the one that is struggling the most to hold on to gains. Key now will be whether the metals can follow zinc’s lead and climb through the resistance seen around the April/May highs. With the dollar on the slide, the metals will have a tail wind, but they probably need evidence of better economic data, especially out of China, to follow zinc’s lead.

The precious metals put in a knee-jerk reaction to the US data and the dollar weakness, we would now expect consolidation and further base building, but there may well be further room on the upside for gold, especially if the ‘leave’ campaign gains ground in the Brexit vote.

 

Overnight Performance   
BST 06:38 +/- +/- % Lots
Cu 4724 40.5 0.9% 2718
Al 1547.5 4.5 0.3% 1310
Ni 8660 150 1.8% 1852
Zn 2019 21 1.1% 1116
Pb 1738 17 1.0% 267
Sn 16700 180 1.1% 73
  Average   1.0%         7,336
Gold 1241.6 -2.4 -0.2%  
Silver 16.417 0.042 0.3%  
Platinum 979.9 -2.1 -0.2%  
Palladium 551.3 -0.7 -0.1%  
  Average PM   -0.1%  

 

SHFE Prices 06:38 BST RMB Change % Change
Cu 36240 820 2.3%
AL  11915 -45 -0.4%
Zn 15830 315 2.0%
Pb 12815 35 0.3%
Ni 69110 1510 2.2%
Sn 109030 1330 1.2%
Average change (base metals) 236.5   1.3%
Rebar 2076 96 4.8%
Au 264.4 5.9 2.3%
Ag 3665 76 2.1%

 

Economic Agenda
BST Country Data Actual Expected Previous
7:00am Germany
German Factory Orders m/m
-2.0% -0.4% 2.6%
 9:10am EU 
Retail PMI
    47.9
9:30am EU 
Sentix Investor Confidence
  7.1 6.2
3:00pm US 
Labor Market Conditions Index m/m
    -0.9
5:30pm US 
Fed Chair Yellen Speaks