METALS MORNING VIEW 01/08: Metals prices retreat again after Chinese manufacturing PMI disappoints

Three-month base metals prices on the London Metal Exchange were down across the board by an average of 1% on the morning of Wednesday August 1. Zinc led the decline with a 1.7% drop to $2,590 per tonne, while copper was down by 1.2% at $6,244 per tonne.

The disappointing release of China’s Caixin manufacturing purchasing manager’s index (PMI) for July – easing to 50.8 from 51 and below the expected 50.9 – has dampened sentiment, although a stronger manufacturing PMI in Japan that climbed to 52.3 from 51.6 was encouraging.

This follows a day of strength on Tuesday when the complex closed up by an average of 1%, led by a 3.4% rebound in zinc prices.

Volume has been above average with 7,807 lots traded across the complex as at 6.51am London time.

Precious metals were split with spot gold and silver prices off between 0.2% and 0.3%, with gold prices at $1,220.25 per oz, while the platinum group metals (PGMs) were up between 0.1% and 0.2%. This follows a day of strength on Tuesday when the complex closed up by an average of 0.3%.

In China, base metals prices on the Shanghai Futures Exchange were mixed, but with more of an upside bias. Lead and tin prices led on the downside with drops of 0.6% and 0.5% respectively, while the rest were up by an average of 0.6% – led by a 1.2% rebound in zinc prices. The most-actively traded September copper contract was up by 0.2% to 49,500 yuan ($7,256) per tonne.

Spot copper prices in Changjiang were up by 0.4% at 49,850-49,960 yuan per tonne and the LME/Shanghai copper arbitrage ratio was at 7.99.

In other metals in China, the September iron ore contract on the Dalian Commodity Exchange was down by 2.6% at 475 yuan per tonne. On the SHFE, the October steel rebar contract was up by 0.5%, while the December gold and silver contracts were both down by 0.1%.

In wider markets, spot Brent crude oil prices were down by 0.25% at $73.98 per barrel this morning. The yield on US 10-year treasuries was firmer at 2.9752%, while the German 10-year bund yield was also firmer at 0.4600%.

Asian equity markets were mixed on Wednesday: Nikkei (+0.84%), Kospi (+0.52%), Hang Seng (-0.22%), CSI 300 (-0.74%) and ASX200 (-0.09%). This follows a stronger performance in western markets on Tuesday; in the United States, the Dow Jones closed up by 0.43% at 25,415.19, while in Europe the Euro Stoxx 50 closed up by 0.38% at 3,525.49.

The dollar index, at 94.66, is firmer within its recent 93.71-95.66 range. On the chart, it looks like the dollar is building the right shoulder of a large inverse head-and-shoulder formation.

Most of the other major currencies we follow are consolidating; sterling (1.3104), the euro (1.1681), the Australian dollar (0.7408), while the yen is weaker at 112.076. The fact that the other major currencies are consolidating is not surprising given this is a heavy week for central bank decisions with the US Federal Reserve and the Bank of England setting policy this week, along with a barrage of other economic data being released.

The yuan remains on a back footing and was recently quoted at 6.8210. The other emerging market currencies we follow are also looking weaker this morning.

The economic agenda is very busy today. On top of data that has already been released, there is PMI data out across Europe and the US, as well as US ADP non-farm employment change, construction spending, crude oil inventories, total vehicle sales and the Federal Open Market Committee’s (FOMC) rate decision and statement.

The base metals prices have lifted off recent lows but for now seem in no hurry to extend rebounds given all the uncertainty over global trade. This may change if the data out over the rest of the week starts to show a pick-up in activity. Meanwhile for copper, prices could rally if Escondida workers vote for a strike.

In the precious metals, gold and silver prices holding in low ground, while the PGMs are following the lead of the base metals and have got some lift off of the lows, but also seem in no hurry to extend gains.

London Metal Exchange, base metals prices

Shanghai Futures Exchange, base metals prices

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