LIVE FUTURES REPORT 07/12: SHFE base metals prices mixed while market awaits direction from US data

A softer dollar overnight provided some support to the SHFE base metals, but with the release of the November US jobs report later on Friday, investors are likely to remain cautious until they have a better picture of the health of the labor market in the United States – and a likely direction in the dollar.

The dollar index was down by 0.08% at 96.80 as at 11.01 am Shanghai time, which compares with 97.04 at roughly the same time on Thursday. The index reached a two-week high of 97.55 on November 28.

The weakness in the US currency comes amid growing expectations that the US Federal Reserve will slow its path of interest rate increases.

“Rates markets, led by the US, are driving down rate hike expectations…..with interest-sensitive parts of the economy slowing and firms becoming less optimistic about the outlook,” ANZ Research said in a morning note on Friday.

With mixed US economic data overnight, “tonight’s payroll and wages data looms as critical,” ANZ Research added.

“With all the headline noise, let’s not forget the USD dollar’s new found overly data dependent theme… Friday’s US employment report and Michigan inflation expectations may determine the next path for the USD,” Stephen Innes, Oanda’s head of trading for Asia Pacific, said in a morning note.

Meanwhile, lingering trade war concerns continue to stoke risk-off trade, which is pressuring metals prices.

These fears deepened on Wednesday following news that the chief financial officer of Chinese tech giant Huawei, one of the world’s largest telecommunications equipment and services providers, has been arrested in Canada and faces extradition to the US.

“The Huawei headline could not have come at a worse time with the market reeling as confusion reigned over the G20 [Group of Twenty] fallout. But when you laminate trade war issues with observed dovish shifts from major central banks, it merely adds a whole new level of unwanted confusion entering year-end,” Oanda’s Innes said.

In copper, prices were marginally higher but remain in relative low ground.

The most-traded February copper contract on the SHFE stood at 49,070 yuan ($7,157) per tonne as at 10.29 am Shanghai time, up by 90 yuan per tonne from Thursday’s close.

A backdrop of tightening availability was helping to offset wider market concerns, but only slightly.

The London Metal Exchange’s cash/three-month forward spread swung into backwardation on Thursday at $9.50 per tonne, suggesting tightening availability.

Deliverable copper stocks at SHFE-listed warehouses stood at 131,042 tonnes in the week ended November 30, down by 18.3% from the start of the year and 57.4% lower than a peak of 307,435 tonnes in the week ended March 23.

“Low copper stocks in SHFE warehouses and a firmer domestic Chinese yuan premium based on the SHFE front month contract are supporting prices at these low levels,” Chinese broker Guotaijunan said in a morning note.

The rest of the complex were split into two camps, with moves limited to narrow ranges – the exception to this was nickel.

Base metals prices

• The SHFE January aluminium contract dipped by 40 yuan per tonne to 13,550 yuan per tonne.
• The SHFE January zinc contract was up by 120 yuan per tonne to 21,380 yuan per tonne.
• The SHFE January lead contract edged down by 30 yuan per tonne to 18,435 yuan per tonne.
• The SHFE January nickel contract fell by 1,460 yuan per tonne to 89,140 yuan per tonne.
• The SHFE January tin contract was up by 170 yuan per tonne to 144,670 yuan per tonne.

Currency moves and data releases

• The dollar index was down by 0.08% at 96.80 as at 11.01 am Shanghai time.
• In equities, the Shanghai Composite was up by 0.08% at 2,607.14 as at 11.30 am Shanghai time.
• In US data on Thursday, weekly unemployment claims stood at 231,000, above the 226,000 estimate. The ADP non-farm employment change for November saw 179,000 Americans gain jobs, falling short of the 195,000 estimate. The final purchasing managers’ index (PMI) stood at 54.7, while the US trade deficit widened to $55.5 billion in October – marking the highest level since October 2008. The trade gap has now widened for a five consecutive months.
• US crude oil inventories fell by 7.3 million barrels to 443.16 million barrels in the week ended November 30, snapping a run of ten straight weekly increases.
• The economic agenda on Friday is similarly focused on the US, with the jobs report, preliminary University of Michigan consumer sentiment and inflation expectations, final wholesale inventories and natural gas storage data due.
• In addition, there are Organisation of Petroleum Exporting Countries (Opec) meetings throughout the day.
• Looking to Saturday, the tentative releases of China’s November yuan- and dollar-denominated trade balances are scheduled.