LIVE FUTURES REPORT 04/07: SHFE base metals stage broad recovery; Ni up 0.8%

Base metals prices on the Shanghai Futures Exchange were mostly up during morning trading on Thursday July 4, following record closing highs for US stocks on Wednesday.

Tin and nickel led the advance with gains of 0.9% and 0.8% respectively so far this morning, while the others posted more moderate increases ranged between 0.1% for lead and 0.7% for aluminium. Zinc bucked the stronger tone exhibited by its peers to drop by 0.1%.

Nickel’s most-traded August contract rose to 98,050 yuan ($14,271) as at 10.45am Shanghai time, up by 780 yuan per tonne from Wednesday’s close of 97,270 yuan per tonne.

The firmer showing by the SHFE base metals comes after two days of data-inspired weakness, in which the complex broadly fell amid growing concern over a slowing global economy.

But a strong performance in US stock markets overnight has led to some follow-through strength in the base metals markets this morning.

Major US indices rose to all-time highs on Wednesday amid thin trading ahead of the country’s Independence Day holiday on Thursday, buoyed by the prospect of more dovish appointees to two of the world’s major central banks and expectations that the US Federal Reserve will reduce interest rates later this month.

The Dow Jones Industrial Average climbed by 179 points, or around 0.7%, to finish Wednesday at 26,966, breaking its closing day record from October 3, 2018, when it ended at 26,828. The Standard & Poor’s 500 Index and Nasdaq Composite both gave similarly strong performances to end the day up by around 0.8% at 2,995 and 8,170 respectively.

A slightly softer US currency further buoyed SHFE base metals prices this morning.

The dollar index, which measures the value of the US dollar against a basket of foreign currencies, was at 96.72, unchanged from a similar time on Wednesday but the index largely trended lower since Tuesday after hitting a recent high of 96.88 on the same day.

The US currency has come under pressure from growing expectations of an interest rate cut in July.

“The market is now pricing in a Fed rate cut at 100% with the biggest debate on if it will be a [cut of] 50 or 25 basis points,” Alfonso Esparza, senior analyst from online trading services provider Oanda, said in a morning note.

Investors’ confidence in an interest rate cut was boosted by US president Donald Trump’s intention to nominate dovish leaders to the Federal Reserve board.

“President Trump intends to nominate Christopher Waller (Vice President of the St Louis Fed) and Judy Shelton to the Federal Reserve Board. Shelton, an economic adviser in Trump’s 2016 campaign, has previously said she would lower rates to 0% over one or two years,” analysts with AZN Research said on Thursday.

“The market’s rising expectations of more dovish central banks also seemed to lift risk appetite in the commodity sector,” the analysts added.

Nickel’s better performance relative to its peers on the SHFE comes amid robust fundamentals which are encouraging an element of dip-buying this morning.

The nickel market is expected to remain structurally tight across 2019 and 2020, according to thte Fastmarkets research team, forecasting annual deficits of 65,000 tonnes and 46,000 tonnes respectively.

Meanwhile, the International Nickel Study Group (INSG) data showed the refined nickel market in a 9,400-tonne deficit in April and a 27,200-tonne deficit across the first four months of 2019.

Other highlights

  • Zinc was the lone metal to record a loss on the SHFE this morning, with its most-traded contract falling to 19,635 yuan per tonne as at 10.45am Shanghai time, down by 15 yuan per tonne from Wednesday’s close.
  • In EU data on Wednesday, the UK’s services purchasing manager’s index (PMI) for the June period was lower at 50.2, down from 51 the prior month and missing expectations of a flat reading.
  • In US data yesterday, the ADP non-farm employment change over the June period was lower at 102,000, missing an expected reading of 140,000 and more than last month’s 41,000; the trade deficit reached a record high at $55.5 billion in May, higher than an expected deficit of $54.3 billion; the ISM non-manufacturing activity index fell to 55.1 in June, its lowest reading since July 2017; factory orders fell 0.7% in May, higher than the expected drop of 0.2%; both the Markit composite and service PMIs were at 51.
  • It is a light day for data on Thursday with US markets closed to mark the country’s national Independence Day holiday.