METALS MORNING VIEW 03/07: Base metals look well placed to extend gains

Base metals prices on the London Metal Exchange are off to a slower start this week with three-month prices up an average of just 0.1%. Copper prices are off 0.4% at $5,937 per tonne, aluminium prices are off 0.1%, while the rest are up between 0.2% and 0.4%. Volume has been average at 5,241 lots as of 06:46 BST.

Today’s performance comes after a generally bullish week last week that saw all prices close near the highs of the week. Further healthy Chinese manufacturing data out this morning, which showed the Caixin purchasing managers’ index (PMI) rebounding to 50.4 from 49.6, bodes well for metal prices.

Gold prices are off 0.3% this morning at $1,237.98 per oz, palladium prices are up 0.6% at $846 per oz, while silver and platinum are little changed. This follows a generally weak performance last week that saw gold prices head back towards a support line.

The base metals on the Shanghai Futures Exchange (SHFE) are for the most part firmer, the exception is copper where prices are off 0.1% at 47,380 yuan per tonne ($6,980 per tonne), while the rest are up an average of 1%. Spot copper prices in Changjiang are little changed at 47,120-47,270 yuan per tonne and the LME/Shanghai copper arb ratio has eased to 7.98.

September iron ore prices on the Dalian Commodity Exchange are rising again, up 1.3% at 473 yuan per tonne. On the SHFE, steel rebar prices are up 2.5%, while gold and silver prices are down 0.6% and 0.3%, respectively.

In international markets, spot Brent crude oil prices are off 0.2% at $48.87 per barrel and the yield on the US ten-year treasuries has climbed to 2.32%.

Equity markets were split on Friday with the Euro Stoxx 50 closing down 0.9%, while the Dow closed up 0.3%. In Asia this morning, the Nikkei and Hang Seng are up 0.1%, the Kospi is little changed, the CSI 300 is down 0.4%, and the ASX200 is down 0.5%.

The dollar index at 95.81 has found some respite from its sell-off that set a low on Friday at 95.47, but it would take a rebound above 97.87 to make the dollar look less vulnerable. The euro at 1.1404 is holding up in high ground, as is sterling at 1.2997, the yen is weaker and the Australian dollar at 0.7669 is consolidating after a strong rally.

The yuan is weaker today at 6.7873, this after a strong move last week and the other emerging market currencies we follow are slightly weaker too.

The economic agenda is busy today – data out already shows strength in Japan’s Tankan surveys and China’s Caixin PMI, although Japan’s consumer confidence eased to 43.3 from 43.6. Later there is manufacturing PMI data out across Europe and the USA, plus Italian and EU unemployment rates and US construction activity, ISM manufacturing prices and total vehicle sales. In addition, UK Monetary Policy Committee member Andrew Haldane is speaking.

The base metals are looking well placed to see stronger prices extend further, helped by better than expected PMI data out of China, a generally weaker dollar and some bullish looking charts. We have generally been quietly bullish for the metals and remain so.

Gold prices are working lower as geopolitical and political tensions have eased in recent weeks and as such there seems less need for havens. Last week’s weakness in equities was short-lived with the Dow recovering towards the end of the week. We would let this pullback run its course but we generally expect dips to be well supported.

Metal Bulletin publishes live futures reports throughout the day, covering major metals exchanges news and prices.

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