LIVE FUTURES REPORT 30/07: SHFE base metals prices broadly higher; nickel climbs 2.6%

Barring those for tin, base metals prices on the Shanghai Futures Exchange were all up during the morning trading session on Tuesday July 30, with the complex benefiting from rising hope amid continuing US-China trade talks.

Although it is unlikely that a deal will be struck in the near term, the fact that China and the United States are looking to prevent tensions from escalating further by returning to the negotiating table has brought some much-needed relief to markets this morning.

“The resumption of trade talks is being viewed in a positive light and while the markets remain in ‘hope for the best but prepare for the worst mode’, an agreement on practically anything will be considered a positive sign,” Stephen Innes, managing partner from Vanguard Markets, said in a morning note.

Providing the SHFE base metals complex with broad support are the expectations of a rate cut at the upcoming two-day US Federal Open Market Committee meeting, which ends on Wednesday.

Despite a rate cut at the meeting widely expected by market participants, the question of how deep the cut will be remains.

“The market seems centered on [a 25-basis-point cut]. But with economic momentum shifting from relative stability to contraction mode a 50-bp-cut is still not out of the question despite two good financial data prints list week, namely US durable good and US GDP,” Innes added.

“Risk appetite will take a cue from how dovish the Fed turns. If the Fed remains data dependent, that would be viewed as hawkish and we could see the dollar surge and US equities fall under tremendous pressure,” Edward Moya, senior market analyst at online trading services provider Oanda, said on Tuesday.

Yet the base metals were decidedly bullish this morning despite the uncertainty, with nickel (+2.6%), copper (+1%), zinc (+1%), lead (+0.4%) and aluminium (+0.1%) all higher, while tin was down a slight 0.04%.

Nickel gave the best performance of the SHFE base metals this morning, with the metal’s most-traded October contract rising to 112,320 yuan ($16,296) per tonne as at 10.30am Shanghai time, up by 2,870 yuan per tonne from Monday’s close of 109,450 yuan per tonne.

Following a similarly strong performance by the London Metal Exchange’s three-month nickel price on Monday, when it closed up by 1.4% at $14,340 per tonne, analysts have been quick to point out that the strength in nickel is being driven more by macro-led sentiment rather than fundamentals.

“Downstream steel mills’ profits are narrowing due to the softening rebar price and lower trading volumes. Therefore, nickel prices are most being driven by sentiment at the moment. The price of nickel and the metal’s current fundamentals do not match,” analysts with China-based brokerage Galaxy Futures said in a morning note.

Other highlights

  • The Shanghai Composite Index increased by 0.66% to 2,960.12 as at 11.27am Shanghai time.
  • The US dollar index was up by 0.07% at 98.12 as at 10.31am Shanghai time.
  • Major US data of note on Tuesday includes the core PCE Price Index and the Conference Board’s reading of consumer confidence. The former, known as the Federal Reserve’s preferred inflation gauge, is forecast to rise by 0.2% month on month or 1.7% on an annualized basis, which remains below the central bank’s 2% target and is supportive for policy easing expectations.
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