LIVE FUTURES REPORT 03/10: Firm dollar, fears of slowing Chinese economy pressure LME base metals prices downward; nickel bucks the trend

Most three-month base metals prices on the London Metal Exchange maintained their downward trajectory during early trading on Wednesday October 3, with recent weak Chinese economic data and a strong dollar dampening risk-on sentiment.

Following the release of China’s softer economic data, market participants are growing concerned that the world’s second-largest economy is on a rapid slowdown. The country’s official manufacturing purchasing managers’ index (PMI) and the Caixin PMI both came in below expectations earlier this week, stoking fears of a contracting Chinese manufacturing sector.

Additionally, speculation over the new United States-Canada-Mexico trade deal possibly aiming to limit China’s participation in the global market, not to mention the firmer dollar of late, only served to add fuel to the fire, leaving most participants to take a more conservative approach to the market.

According to reports, the trilateral agreement included a special clause that gives any of the three parties the right to terminate the deal should one of them enter into a free-trade agreement with a “non-market economy.”

China has yet to be considered a “market economy” under the World Trade Organization framework, and pundits are wont to view this as Washington’s move to create an economic alliance against Beijing.

The agreement is set to be taken up for approval by the North American trio early next year.

Meanwhile, these macroeconomic factors have converged to pressure most prices in the base metal complex lower.

The three-month aluminium price dipped the most, falling 0.4%, followed by lead and copper with a decline of 0.2%. Zinc slumped by 0.1%. Tin has, so far, not yet traded.

Nickel, however, bucked the trend, rising by a marginal 0.1%. Fastmarkets MB analyst Andy Farida said nickel still sees a robust fundamental backdrop of persistent decline in global exchange inventory, structural market deficit and an optimistic demand outlook. However, he warned that this material remains susceptible to a rapid demand contraction if Chinese economic growth rate starts to cool off.

Base metal prices down, bar nickel

  • The three-month copper price fell $11.50 per tonne to $6,268.50 per tonne
  • The three-month aluminium price slid $8 per tonne to $2,110 per tonne.
  • The three-month zinc price dropped $3 per tonne to $2,662 per tonne.
  • The three-month lead price dipped $4 per tonne to $2,057 per tonne.
  • The three-month nickel price rose $15 per tonne to $12,530 per tonne.
  • Three-month tin was untraded.

Currency moves and data releases

  • The dollar index was relatively unchanged at 95.51 as at 9am Shanghai time.
  • In other commodities, the Brent crude oil spot price was at $84.66 per barrel as at 9am Shanghai time.
  • In European data this morning, the United Kingdom’s nationwide house price index rose by 0.3% month on month in September, beating an expected increase of 0.2% as well as last month’s 0.5% decline.
  • Elsewhere, Spain’s unemployment change for September showed an increase of 20,400 during the month, which is down significantly from the previous month’s rise of 47,000 and lower than the expected gain of 28,200.
  • The European Union’s producer price index for the September period came in at 0.3%, down from last month’s figure of 0.7%, but exceeding the forecast reading of 0.2%.
  • Today, the EU will report on its final services PMI and retail sales. Elsewhere in Europe, Spain, Italy, France, Germany, and the UK are also releasing its services PMI.
  • In the US, data on the country’s final services PMI, ISM non-manufacturing PMI, crude oil inventories, and total vehicle sales can be expected today.
  • In addition, US Federal Reserve Chair Jerome Powell is due to speak about the outlook for employment and inflation at the National Association for Business Economics Annual Meeting in Boston, while US Federal Reserve Bank of Richmond President Thomas Barkin is scheduled to deliver a speech on “The Outlook for Tomorrow: Five Numbers to Watch,” at the West Virginia Economic Outlook Conference.