LIVE FUTURES REPORT 27/05: SHFE base metals prices broadly down on firm dollar, trade uncertainty; Ni up 1.3%

The firmer dollar of late coupled with macroeconomic uncertainty has spooked investors, limiting trading activity this morning and causing the SHFE base metals complex to give back some of Wednesday’s gains.

The dollar strengthened to 96.27 as at 10.26am Shanghai time compared with a reading of 95.99 at 95.9 at roughly the same time Tuesday.

The dollar index, which measures the value of the US dollar against a basket of foreign currencies, was up by 0.1% as at 10.26am Shanghai time. This compares with readings of 96.29 and 95.93 at a similar time on Wednesday and Tuesday respectively.

The firmer tone of the US currency in recent days follows less-dovish-than-expected comments from US Federal Reserve chairman Jerome Powell late on Tuesday in which he maintained that monetary policy is under review but gave no clear indication that interest rates would be lowered at Federal Open Market Committee’s meeting in July.

“The Fed chair and the most prominent dove in the FOMC were less dovish than two weeks ago. Chair Powell stressed the negative impact trade disputes have on economic growth, but he continues to be hawkish on the American economy despite the latest indicators showing some softness. Powell remarked that even the tariffs have not put a lot of pressure,” Alfonso Esparza, senior market analyst from online trading services provider Oanda, said in a morning note.

Mixed messages on trade developments between China and the United States overnight also served to heightened investors’ cautious approach to trade this morning while they await a key meeting between US president Donald Trump and China’s Xi Jinping on the sidelines of the Group of Twenty (G20) summit in Osaka, Japan, which gets underway on Friday.

“Risk sentiment initially picked after US Treasury Secretary Mnuchin stated ‘we were about 90% of the way there [with a deal with China] and I think there’s a path to complete this’, but then this quickly faded. President Trump again played down the prospects of a deal, stating ‘My Plan B is that if we don’t make a deal, I will tariff and maybe not at 25%, but maybe at 10%, but I will tariff the rest of the $600 billion that we’re talking about’,” Tapas Strickland, analyst at National Australia Bank, said on Thursday.

This further weighed on SHFE base metals prices this morning. Losses across the complex ranged between 0.1% for the August aluminium contract and 0.7% for the August zinc contract.

Nickel was the standout performer during morning trading, however, and was the sole SHFE base metal to secure a gain. The most-traded August nickel price on the SHFE stood at 101,360 yuan ($14,737) per tonne as at 10.26am Shanghai time, up by 1.3% or 1,290 yuan per tonne from Wednesday’s close of 100,070 yuan per tonne.

The strength in SHFE nickel prices follows strong gains in the London Metal Exchange’s three-month nickel price on Wednesday, when the latter rose by 1.4% to close at $12,490 per tonne. The three-month nickel price benefited from bouts of short-covering and declining LME stocks. On-warrant material at LME warehouses totaled 105,630 tonnes on Wednesday – the lowest since 2012.

Other highlights

• The Shanghai Composite Index edged up by 0.8% to 3,000.18 as at 11.10am Shanghai time.
• In US data released on Wednesday, core durable goods orders month on month for the June period were up by 0.3%, beating an expected rise of 0.1% and up from a fall of 0.1% last month.
• In US data on Thursday, the third and final revision of annualized gross domestic product (GDP) for the first quarter is due. Forecasts are for GDP to be unchanged from the previous release at 3.1%.