METALS MORNING VIEW 08/05: Metals prices buoyed by strong Chinese trade data

Base metals prices on the London Metal Exchange were for the most part stronger on the morning of Tuesday May 8, with all the metals, except tin (-0.7%), up by an average of 0.7%. Zinc led the advance with a 1% gain and copper was up by 0.2% at $6,858 per tonne.

Volume on the LME has been average, with 7,927 lots traded as at 07.06 am London time.

The precious metals were more diverse this morning with gold and silver bullion prices off by 0.2%, while platinum and palladium prices were up 0.3% and 0.4% respectively.

Base metals prices on the Shanghai Futures Exchange this morning were for the most part stronger, with the complex up by an average of 0.6%. As on the LME, tin prices were down by 0.7%, while the rest of the metals were up by an average of 0.9%, with copper prices up by 0.3% at 51,420 yuan ($8,079) per tonne.

Spot copper prices in Changjiang were up by 0.3% at 50,960-51,100 yuan per tonne and the LME/Shanghai copper arbitrage ratio was recently at 7.49.

In other metals in China, iron ore prices were up by 1.6% at 476 yuan per tonne on the Dalian Commodity Exchange. On the SHFE, steel rebar prices were down by 0.1%, while gold and silver prices were both down by 0.1%.

In wider markets, spot Brent crude oil prices were strong at $75.67 per barrel, the yield on US 10-year treasuries was easier at 2.95%, as was the German 10-year bund yield at 0.53%.

Equity markets in Asia were for the most part stronger on Tuesday: Nikkei (+0.18%), Hang Seng (+1.41%), CSI 300 (+1.26%) and the ASX 200 (+0.12%), but the Kospi is down by 0.47%. This follows a stronger performance in western markets on Monday, where in the United States the Dow Jones closed up by 0.39% at 24,357.32, and in Europe where the Euro Stoxx 50 closed up by 0.38% at 3,564.19.

The dollar index at 92.69 remains firm and seems to be trending higher now. The recent high was 92.98, so in the short term the index is consolidating. The other major currencies we follow are mixed with the euro looking weaker at 1.1928, sterling is firmer at 1.3582 after having found support in recent days, as has the yen (108.91), while the Australian dollar (0.7516) is consolidating.

Economic data out already on Tuesday showed strength in China’s April imports (+21.5% year on year) and exports (+12.9% year on year) in dollar terms, which suggests a strong domestic economy and a pickup in the activity with China’s trading partners. In addition, Germany’s industrial production climbed 1%, having been expected to climb 0.8%, and the country’s trade balance was also stronger. Later there is data on UK house prices, with US data on small businesses, job openings and economic optimism. In addition, US Federal Reserve chair Jerome Powell is speaking, while at 7pm London time US President Donald Trump is scheduled to talk about about the Iranian nuclear deal.

Aluminium prices have been setting the stronger tone across most of the base metals in recent days, with copper, zinc, lead and nickel prices following suit, while tin prices continue to meander sideways. We have remained quietly bullish, but have seen the lack of encouraging economic news as the main reason that has capped the upside. Today’s stronger Chinese trade data shows some pickup in activity, if this feeds through to a pickup in economic data in the weeks ahead then confidence may rebound and with it some restocking.

Precious metals prices had been under pressure ahead of last week’s US Federal Open Market Committee meeting, but with that now out of the way prices have found some lift. The firm dollar continues to be a headwind, so in the absence of a pickup in geopolitical tension we expect gold prices to remain in their sideways trading pattern. Trump’s action on the Iranian deal may well set the next direction for gold prices.

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