LIVE FUTURES REPORT 22/08: SHFE base metals prices consolidate ahead of manufacturing data; Zn up 0.7%

Base metals prices on the Shanghai Futures Exchange consolidated during morning trading on Thursday August 22 while market participants await further direction from the release of manufacturing data later.

The highly anticipated minutes from the US Federal Open Market Committee (FOMC)’s July meeting came out on Wednesday, but the release did little to stimulate much trading, eliciting only a small reaction in US treasury yields and the dollar.

“The FOMC July minutes came and went with little fanfare,” said ANZ research analyst Felicity Emmett in a morning note.

“Most officials viewed the July rate cut as a mid-cycle adjustment in response to the evolution of the economic outlook,” Emmett added. Rate cuts imposed by the FOMC were about 25 basis points, largely considered a market calibration.

“More interestingly, the minutes showed an acknowledgment from officials that the US administration trade policy was likely to be more of a longer lasting rather than transitory uncertainty, resulting in a ‘persistent headwind’ for the US economic outlook,” Rodrigo Catril, currency strategist with National Australia Bank, said.

“Therefore and notwithstanding the emphasis in the message that the 25 [basis point] funds rate cut was just a small calibration, the minutes also stressed the need to be flexible given ‘the nature of the risks weighing on the economy’ and ‘the absence of clarity regarding when those risks might be resolved’,” Catril added.

Overall, the minutes provided little clarity on what the future course for rates will be and market participants will be eagerly awaiting US Federal Reserve chair Jerome Powell’s speech on Friday for any clues.

Ahead of that, however, market participants will be looking forward to the release of a slew of manufacturing purchasing managers’ index (PMI) data on Thursday – see other highlights below.

The base metals markets are therefore likely to remain subdued ahead of these releases, while participants await a better idea of how global economies are faring.

Indeed, most base metals prices on the SHFE were down this morning: October copper (-0.1%), October lead (-0.7%), September tin (-0.7%) and October nickel (-0.4%). October aluminium was little changed to slightly higher while October zinc lead on the upside with a gain of 0.7%.

The most-traded October zinc contract on the SHFE stood at 18,615 yuan ($2,636) per tonne as at 10.18am Shanghai time, up by 145 yuan per tonne from Wednesday’s close of 18,470 yuan per tonne.

Zinc’s stronger performance relative to its peers follows strength on the London Metal Exchange on Wednesday, when the LME three-month zinc price climbed by 2.3% to close at $2,288.50 per tonne - its highest price since August 13.

“The emergence of dip-buying activity near the recent low should provide LME zinc with sufficient momentum to rebound in the very short term,” Fastmarkets analyst Andy Farida said.

“And while we expect some upside in the LME zinc price, any gains will remain limited due to the metal’s challenging fundamental dynamics and the challenging macroeconomic backdrop,” he added.

Other highlights

  • The dollar index, which gauges the strength of the US dollar against a basket of foreign currencies, was unchanged at 98.24 as at 10.18am Shanghai time.
  • In US data on Wednesday, existing home sales came in at 5.42 million, beating the forecast of 5.41 million and up from the previous reading of 5.29 million.
  • Data already out on Thursday showed Japanese manufacturing activity shrank for a fourth consecutive month in August, with the country’s manufacturing PMI rising to a seasonally adjusted 49.5 from 49.4 last month, but remaining below the 50 threshold that separates contraction from expansion.
  • Manufacturing PMI data from France, Germany, the European Union and the United States are due later.
  • Other US releases of note on Thursday include unemployment claims and the Conference Board’s consumer confidence reading.
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