LIVE FUTURES REPORT 05/06: SHFE lead rises 1% amid weaker dollar, improved sentiment

Lead prices stood out as the biggest gainer in percentage terms on the Shanghai Futures Exchange during morning trading on Wednesday June 5 against the backdrop of a weaker dollar and improved sentiment overnight.

The most-traded July lead contract on the SHFE was at 16,035 yuan ($2,321) per tonne at 9.35am Shanghai time, up by 165 yuan per tonne - or 1% - from Tuesday’s close of 15,870 yuan per tonne.

The dollar index, which gauges the strength of the US dollar against a basket of foreign currencies, fell to 97.05 as at 9.35am Shanghai time, compared with the most-recent high of 98.29 on May 30. The weakening of the dollar came after United States Federal Reserve chairman Jerome Powell hinted of a willingness to lower interest rates on Tuesday.

“The tone from senior [Federal Open Market Committee (FOMC)] members lately is that market pricing for rate cuts is out of whack with the data and the market may be running ahead of itself.

“There are currently more than two cuts priced into the US curve this year. Overnight, Powell indicated an openness to rate cuts if the [US-China] trade war escalates and starts to impede economic activity… Several other Fed officials reiterated a similar message, with [Charles] Evans, who is on the dovish side of the spectrum, saying that the market is ‘seeing something that he is not,’” Daniel Been, an analyst at the Australia & New Zealand Banking Group (ANZ), said in a morning note.

Meanwhile, lead prices also found some support from a drop in stock levels at SHFE-approved warehouses. Inventory levels fell 1,804 tonnes - or 5.6% - week on week to 30,682 tonnes on May 31.

The decline indicates strong demand in the domestic market, which is also reflected by an increase in imports of lead concentrate.

“The latest trade data shows that Chinese imports of lead concentrate had increased by 30% year on year in April and are up 33% in January-April 2018, which reflects strong demand amid favorable treatment charges,” James Moore, an analyst in Fastmarkets MB’s research division, said. He added that the rate of import could slow with China imposing fresh import tariffs on US lead concentrate from June 1.

Other highlights

  • Nickel was the worst performer among the SHFE base metals, with the metal’s most-traded July contract falling to 96,240 yuan per tonne at 9.35am Shanghai time. This is down 470 yuan per tonne - or 0.5% - from Tuesday’s close of 96,710 yuan per tonne.
  • Data released on Tuesday showed the United Kingdom’s construction purchase managers’ index (PMI) came in at 48.6 for May, against a forecast 50.6 as well as April’s 50.5. This is the sharpest decline since March 2018.
  • Italy’s unemployment rate was unchanged, at 10.2%, lower than an estimated 10.3%.
  • In the US, factory orders fell by 0.8% to $499.3 billion on a month-on-month in April. It had been forecast to drop by 1%.
  • A flurry of PMI data for May from Japan, Italy, France, Germany, the UK, the eurozone as well as the US will be released on Wednesday. The April producer price index data in the eurozone are also due for release.
  • China’s Caixin composite PMI for May sits at 51.5, compared with April’s 52.7, while the Caixin services PMI stood at 52.7, lower than an expected 54 and the preceding month’s 54.5.
  • In addition, FOMC members Raphael Bostic and Eric Rosengren are due to speak on Wednesday.
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