LIVE FUTURES REPORT 21/01: US-China trade optimism continues to buoy SHFE base metals prices

Market sentiment had turned more bullish late last week following news that the US was mulling the removal of tariffs on Chinese imports, resulting in general strength across more riskier assets, including the base metals.

Signs of strength in the US economy had also helped bolster sentiment, according to ANZ Research.

“Risk markets were well supported on hopes of a breakthrough in the US-China trade talks and better-than-expected US manufacturing output data. US manufacturing output rose strongly, up 1.1% [month on month] – its biggest rise in ten months,” ANZ Research said in a morning note.

This more bullish tone in the market has persisted into trading on Monday, giving the base metals a slight boost while the market digests a slew of Chinese data released this morning.

China released a host of data on Monday morning including full-year 2018 gross domestic product (GDP) data showing China’s weakest annual economic growth in 28 years. However, the data was in line with expectations so the impact has been fairly limited. See data section below for other Chinese releases out earlier.

Base metals on the SHFE were broadly higher, but gains were somewhat limited as a result of the recent China data. Tin was the lone metal in negative territory.

Nickel registered the largest gain during morning trading with the metal’s most-traded May contract rising to 94,790 yuan ($13,983) per tonne, a gain of 0.8% or 710 yuan per tonne from last Friday’s close.

This firm showing by nickel follows another decline in SHFE nickel stocks last week; nickel stocks at SHFE-listed warehouses fell by 4% or 582 tonnes to 13,884 tonnes.

“The underlying fundamentals are likely to remain supportive; the International Nickel Study Group forecast the refined nickel market to record a further 33,000-tonne deficit in 2019 after the 118,700-tonne deficit in January-October 2018,” Fastmarkets analyst James Moore said.

Base metals prices

• The SHFE March copper contract climbed by 110 yuan per tonne to 47,970 yuan per tonne.
• The SHFE March aluminium contract increased by 55 yuan per tonne to 13,530 yuan per tonne.
• The SHFE March zinc contract inched up by 15 yuan per tonne to 21,495 yuan per tonne.
• The SHFE February lead contract ticked up by 25 yuan per tonne to 17,740 yuan per tonne.
• The SHFE May nickel contract rose by 710 yuan per tonne to 94,790 yuan per tonne.
• The SHFE May tin contract fell by 480 yuan per tonne to 147,520 yuan per tonne.

Currency moves and data releases

• The dollar index was down by 0.54% at 96.05 as at 10.21am Shanghai time.
• In equities, the Shanghai Composite was up by 0.54% to 2,609.96 as at 10.21 am Shanghai time.
• In European data last Friday, UK retail sales declined by 0.9% in December 2018 compared with the prior month. This was slightly bigger than the 0.8% fall that had been forecast.
• In US data last Friday, industrial production rose by 0.3% month on month in December last year, beating the forecast for a 0.2% gain. The capacity utilization rate for the same month rose to 78.7% – the highest level in almost four years. The University of Michigan’s (UOM) consumer sentiment index plunged to 90.7 in January from 98.3 previously, this was well below the forecast of 97.5. UOM inflation expectations stood at 2.7%.
• In Chinese data on Monday, the country’s gross domestic product (GDP) growth slowed to 6.6% in 2018, the slowest growth since 1990. Fourth quarter 2018 GDP growth stood at 6.4% which was as expected.
• Other data from China was more positive; the country’s industrial output climbed 5.7% year on year in December 2018, beating expectations of 5.3% growth, and rising from November’s 5.4% growth. Retail sales data rose 8.2% year on year in the same month, in line with forecasts and up from November’s 8.1% gain.
• Data out later includes the German producer price (PPI) and a Bundesbank monthly report.