- China’s official manufacturing PMI at 50.4 improved noticeably in August, well above market consensus of 49.9. But China’s Caixin manufacturing PMI at 50.0 weakened slightly.
- Base and precious metals strenghtened slightly lowing the release of Chinese data.
- Base metals could enjoy upward pressure in near-term as investors may rebuild some long positioning across the complex to play a possible macro stabilisation in China’s economy.
- Precious metals may remain under selling pressure, reflecting investors’ fears over a possible faster pace of removal Fed’s policy accommodation.
- Tomorrow’s US jobs report for August is crucial – overall risk sentiment could be altered.
Base metals posted generally some gains on Wednesday in spite of stronger risk-aversion. But aluminium and nickel finished in negative territory, probably driven by some-profit taking amid investors’ fears of negative macro surprises. Precious metals were under selling pressure, in part in response to a steeper expected path of Fed funds rates and a sharp sell-off in oil prices on stronger-than-expected crude oil inventories.
This morning, base metals on the LME are slightly stronger amid low volumes amid encouraging China’s PMIs and a slightly weaker dollar. Precious metals are stabilising somewhat, probably supported by a tentative rebound in oil and renew weakness in the dollar.
In Shanghai, the October base metals contracts are a touch stronger, with the complex up 0.5 percent on average. Lead and tin perform the strongest, strengthening 1.1 percent each, while aluminium, dropping 1.2 percent, is the only metal to post a loss.
Meanwhile, spot copper in Changjiang is up 0.4 percent at 36,370-36,490 yuan, while the contango with the futures is at $10.48 per tonne, and the LME/Shanghai copper arb ratio is broadly unchanged from yesterday at 1:7.86.
Bonds – The US government bond market weakened slightly for a second straight day, leading yields higher, after rallying sharply on Monday. This was partly attributed to the stronger-than-expected non-farm ADP employment report, but largely offset by the weaker-than-expected Chicago PMI and especially the sharp sell-off in oil prices, with WTI crude futures tumbling roughly three percent on the day.
Stocks – Broad equities were weaker on Wednesday. European equities gave up gains in the second half of the trading session, with the Euro Stoxx closing down 0.25 percent. US equities also ended in negative territory amid a higher estimated probability of a September Fed rate increase priced by the market and the notable drop in oil. The Dow Jones closed down 0.29 percent and the S&P 500 edged 0.24 percent lower. Looking at equities this morning, Asian equities are mixed because yesterday’s weaker tone in the US is offsetting somewhat encouraging China’s macro data. While the Nikkei 225 (+0.09 percent) and the Hong Kong Sand Index (+0.64 percent) are strengthening a little, the CSI 300 (-0.29 percent) and the Kospi (-0.16 percent) are pushing lower.
FX – The dollar is broadly unchanged today, with the DXY currently trading at 96.00, after experiencing a rally at the start of the week amid a number hawkish statements from Fed members and solid US macro data releases. The yuan is little changed against the dollar today, with USDCNY trading at 6.68, in spite of positive Chinese manufacturing activity.
In terms of the day ahead, the economic agenda will be fairly busy. We will kick off in Europe with manufacturing PMIs for August. In the US, we will get challenger job cuts for August, latest weekly unemployment claims, and revised non-farm productivity and unit labor costs for the second quarter. Then investors will closely monitor the manufacturing reading for August as well as the ISM manufacturing PMI and prices and construction activity. This raft of macro data should give investors some patience before the key release of the US jobs report for August due tomorrow, which could alter materially the current macro environment and therefore metals, especially the precious metals complex.
Base metals could experience some buying pressure in near-term as investors may be tempted to rebuild some long positioning across the board to play a macro stabilisation in the Chinese economy following the latest China’s PMIs. This would not be surprising considering that money managers reduced noticeably their risk exposure to metals recently, the latest LME COTR showed.
Precious metals are likely to be under selling pressure ahead of tomorrow’s US jobs report. But considering that investors are expecting solid US jobs numbers, a short-covering rally in precious metals cannot be excluded should tomorrow’s key report disappoint to the downside and lower markedly the probability of a Fed rate increase this month.
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Capital Spending q/y
Caixin Manufacturing PMI
Final Manufacturing PMI
Spanish Manufacturing PMI
Italian Manufacturing PMI
French Final Manufacturing PMI
German Final Manufacturing PMI
Final Manufacturing PMI
Challenger Job Cuts y/y
Revised Nonfarm Productivity q/q
Revised Unit Labor Costs q/q
Final Manufacturing PMI
ISM Manufacturing PMI
Construction Spending m/m
ISM Manufacturing Prices
Total Vehicle Sales