METALS MORNING VIEW 31/07: Strong start for the metals despite disappointing Chinese PMI

Base metals traded on the London Metal Exchange are looking stronger this morning, Monday July 31, with gains across the complex. Prices are up by an average of 0.6%; zinc leads the advance with a 1% rally to $2,813 per tonne, tin and copper follow with 0.7% gains, with the latter at $6,388 per tonne, it having once again been up as high as $6,400.

Volume has been strong with 9,296 lots traded as of 07:10 BST. This comes after a weaker performance on Friday when the market saw a mixture of consolidation and profit-taking.

Precious metals are split this morning with the PGMs up either side of 0.6%, while gold and silver prices are little changed with gold prices off 0.1% at $1,268.04 per oz. This follows a bullish day on Friday when the complex was fairly closely grouped with prices up an average of 0.8%.

On the Shanghai Futures Exchange (SHFE), most of the base metals are firmer with lead and nickel prices up either side of 1.7%, copper prices are up 08% at 50,420 yuan ($7,500) per tonne, zinc prices are up 0.2% and tin prices are up 0.1%, while aluminium bucks the trend with a 0.5% fall. Spot copper prices in Changjiang are up 0.8% at 50,030-50,350 yuan per tonne and the LME/Shanghai copper arb ratio has weakened to 7.89.

In other metals in China, September iron ore prices on the Dalian Commodity Exchange are up a massive 8% at 570 yuan per tonne on the back of stronger construction data. On the SHFE, steel rebar prices are up 4.6%, while gold and silver prices are up 0.3% and 0.2%, respectively.

In international markets, spot Brent crude oil prices are up 0.3% at $52.39 per barrel and the yield on US ten-year treasuries is weaker at 2.28% and the German ten-year bund yield is at 0.54%.

Equities were broadly weaker on Friday with the Euro Stoxx 50 closing down 0.7% but the Dow closed up 0.2%, although the S&P 500 and Nasdaq composite closed off 0.1%. Asian markets are generally firmer, with the Hang Seng up 1%, the CSI 300 is up 0.4%, the ASX 200 is up 0.3% and the Kospi is up 0.1%, while the Nikkei is off 0.2% weighed down by a firmer yen.

The dollar index is at 93.49, it set a fresh low for the year at 93.15 on July 27. The euro at 1.1726 is consolidating recent gains, as is the Australian dollar at 0.7980, sterling is firm at 1.3115, as is the yen at 110.67. The yuan at 6.7223 is climbing; it is the strongest it has been since October 2016, while most of the other emerging currencies we follow are little changed.

The economic agenda is busy – Chinese data already out showed some weaker data with official manufacturing PMI dropping to 51.4 from 51.7 and non-manufacturing PMI dropped to 54.5 from 54.9. Japan’s industrial production climbed 1.6% and housing starts rose 1.7%, both better than expected, as was the case with Germany’s retail sales that climbed 1.1%. Later there is data on Italian and EU unemployment, UK lending, EU and Italian CPI, Chicago PMI and US pending home sales.

Despite weaker than expected Chinese PMI data, the base metals are performing strongly with prices seeing some follow-through buying after the stronger tone seen last week. With iron ore prices jumping 8% this morning in China, it does look as though commodities are in demand again. Copper, nickel and tin continue to lead the advance, lead and zinc are well placed to break higher, while aluminium’s brakes are still on. We have generally been quietly bullish for the metals – the danger is that prices may run ahead of the fundamentals again but for now there is upward momentum.

Gold prices have done well, especially with strong equity markets but with North Korea rattling the world’s cage, especially the USA’s and with the diplomatic spat between the USA and Russia, combined with the weaker dollar, we are not surprised that gold prices are strengthening and that may continue as it seems to have some momentum. Silver is following gold’s lead, palladium is firmer, while platinum struggling to keep up.

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

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