LIVE FUTURES REPORT 04/11: SHFE base metals prices shrug off positive trade news, US data

With the exception of those for aluminium and zinc, base metals prices on the Shanghai Futures Exchange were down during the morning trading session on Monday November 4.

The lackluster performance comes despite positive developments in United States-China trade negotiations regarding the signing of a “Phase One” deal as well as better-than-expected data that boosted wider risk sentiment heading into the weekend.

US Commerce Secretary Wilbur Ross said on Sunday that there was “no natural reason” why a “Phase One” trade deal with China could not be reached this month and that licenses for US companies to sell components to Huawei Technologies would be coming “very shortly”.

US President Donald Trump added to the positive spin by saying that the interim trade agreement, if signed, would be signed somewhere in the US. This helped offset some of the negativity that permeated the market last week after Chile withdrew as host of the Asia Pacific Economic Cooperation (APEC) trade summit on November 16-17, where the US and China were previously expected to sign the “Phase One” deal.

Yet wider concerns that a long-term trade deal between the world’s two largest economies continue to cast a cloud on the market, and thus is keeping market participants from getting overly optimistic.

“Importantly, as much as the US-China trade updates continue to point to a ‘Phase One’ deal looking like a certainty, the contentious issues on whether the US will cancel the planned December tariffs and remove some of the current tariffs in line with China’s demands remains an unknown and if the issue is not resolved then a deal could easily collapse,” Rodrigo Catril, currency strategist at National Australia Bank, said in a morning note.

These lingering concerns seem to be enough to offset the positivity stemming from recent trade developments and the better-than-expected jobs data from the US on Friday – see other highlights below.

As a result, the SHFE base metals were broadly down during the morning trading session on Monday, with lead giving the worst performance in percentage terms.

The most-traded December lead contract stood at 16,455 yuan ($2,338) per tonne as at 10:35am Shanghai time, down by 120 yuan per tonne – or 0.7% – from Friday’s closing price of 16,575 yuan per tonne.

This was followed by declines in January tin (-0.6%), December nickel (-0.4%) and December copper (-0.2%). The December contracts for zinc and aluminium were marginally higher during the morning session with gains of 0.5% and 0.3% respectively.

The slightly positive performance by aluminium and zinc follows declines in both metals’ stocks at SHFE-approved sheds last week. SHFE aluminum inventories declined by 16,101 tonnes or 5.5% to 278,736 tonnes as of November 1, while zinc stocks fell by 2,276 tonnes or 3.6% to 61,799 tonnes.

Other highlights

  • The dollar index was down by 0.02% at 97.18 as at 12.25am Shanghai time.
  • The Shanghai Composite Index was up by 0.75% at 2,980.43 as at 11.30 am Shanghai time.
  • In US data on Friday, nonfarm payrolls increased by 128,000 in October, easily beating the expected 89,000. Average hourly earnings disappointed however, with an increase of 0.2% versus the expected 0.3% rise, and the unemployment rate was in line with expectations at 3.6%, but up from 3.5% previously.
  • Also on Friday, the US’ ISM manufacturing purchasing managers’ index (PMI) came in at 48.3 in October, missing the forecast 49 and marking the third straight month of contraction.
  • In data today, there is a host of manufacturing PMI releases out across Europe, while the European Union’s Sentix investor confidence and the United Kingdom’s construction PMI are also of note.