METALS MORNING VIEW 16/07: Weak Chinese data keeps metals prices under pressure

Base metals prices remained on a back footing this morning, Monday July 16, with three-month prices on the London Metal Exchange down by an average of 0.7%. Prices are in low ground with US trade policy and slow/slowing global economic growth weighing on prices.

Three-month copper prices were off by 0.1% at $6,208 per tonne and volume has been above average with 8,976 lots traded across the complex as at 7.41am London time.

This follows a mixed performance last Friday, when aluminium and nickel prices were lower and the rest closed firmer.

The precious metals prices were firmer this morning, with gains seen across the board ranging from 0.2% for gold ($1,244.16 per oz) and 0.7% for palladium. But this follows a day of weakness on Friday, when the complex closed down by an average of 1%.

In China, base metals prices on the Shanghai Futures Exchange were mixed, with copper, lead and tin prices up by 0.2%, 1.2% and 0.2%, respectively, while nickel, zinc and aluminium prices were down by 2.1%, 0.7% and 0.5% respectively. The most-actively traded September copper contract was recently quoted at 48,930 yuan ($7,312) per tonne.

In other metals in China, the September iron ore contract on the Dalian Commodity Exchange was down by 0.2% at 465 yuan per tonne. Meanwhile on the SHFE, the October steel rebar contract was down by 0.1%, the December gold was up by 0.1% and the December silver was down by 0.2%.

Spot copper prices in Changjiang were up by 0.6% at 48,720-48,990 yuan per tonne and the LME/Shanghai copper arbitrage ratio was stronger at 7.89 after 7.85 on Friday.

In wider markets, spot Brent crude oil prices were down by 0.1% at $74.73 per barrel this morning. The yield on US 10-year treasuries was weaker at 2.8367%, as were the German 10-year bund yield at 0.2850%.

Asian equity markets were weaker on Monday: Nikkei (closed), Hang Seng (-0.28%), CSI 300 (-0.76%), the Kospi (-0.39%) and the ASX200 (-0.43%). This follows a stronger performance in western markets last Friday, where in the United States the Dow Jones closed up by 0.38% at 25,019.41, and in Europe where the Euro Stoxx 50 closed up by 0.26% at 3,454.54.

The dollar index was weaker at 94.60, with last week’s rally stalling – suggesting the double high in the second half of join at 95.54 still dominates. This has provided some lift for the euro (1.1696), sterling (1.3246) and the Australian dollar (0.7432), while it has halted the latest sell-off in the yen (112.39).

The yuan is holding in low ground at 6.6880, the recent low being 6.7167. For now, the other emerging market currencies we follow are diverging with the peso and rand strengthening, the real consolidating, while the rupiah and ringgit are holding in low ground.

Economic data already out this morning shows a generally weaker picture for Chinese industry with gross domestic product (GDP) growth slowing to 6.7% in the second quarter of 2018, from 6.8% in the first quarter. China’s industrial production rose 6%, from a prior reading of 6.8% and fixed asset investment climbed 6% from 6.1% previously. Retail sales, however, climbed 9% from a previous reading of 8.5%.

Data out later includes data on Italian and EU trade balances, with US data including retail sales, Empire State manufacturing index and business inventories.

The summer lull, uncertainty over how extended the trade wars with the US will be and slower economic growth, are all major headwinds for the metals and that seems to be continuing to prompt stale/disappointed long liquidation. In this falling knife climate, traders are likely to stay on the side lines for as long as they can, but it may be they are destocking and buying hand-to-mouth, which is likely to be followed at some time by restocking. But, for now consumers seem in no hurry to bargain hunt in volume.

Gold prices retested support last Friday with prices breaching the early July support at $1,237.95 per oz to establish a fresh low at $1,236.85 per oz, but that was still just above the December low at $1,236.55 per oz. Silver and the platinum group metals are following gold’s lead and all are looking vulnerable, even palladium, which has the strongest fundamentals of them all.

With the yen and gold in retreat, it does seem as though the main safe haven is the US treasury market – at these low gold prices, gold could look a more attractive haven asset again, especially if the Chinese/US trade war prompts China to reduce its buying, or even sell, US treasuries.

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