MORNING VIEW: China’s manufacturing moves back into expansion mode – bodes well for metals

The demand outlook for the metals has improved now that two of China’s manufacturing purchasing managers’ indices (PMI) showed manufacturing was in expansion mode.

The state PMI moved back above 50 for the first time in seven months in November and the Caixin manufacturing PMI has now shown month-on-month gains for four consecutive months.

  • Asian equities are showing gains this morning, led by a 1.01% rise in the Nikkei
  • China’s manufacturing PMI climbs to 50.2, it was expected to come in at 49.5
  • China’s Caixin manufacturing PMI climbed to 51.8 from 51.7

Base metals
Three-month base metals prices on the London Metal Exchange were mixed this morning, Monday December 2, with lead and zinc down by 0.5% and 0.2% respectively, while the rest were up by between 0.1% for nickel and 0.7% for tin. Copper was up by 0.3% at $5,897 per tonne, with aluminium up by 0.5%.

Trading volume has been average with 5,603 lots traded as at 7.17am London time.

In China, the most-traded base metals contracts on the SHFE were on divergent paths: January zinc and lead were down either side of 1.2%, February nickel was off by 0.2%, January aluminium was up by 0.9% and January tin was up by 0.7%, while January copper was little changed at 47,300 yuan ($6,725) per tonne, up by just 20 yuan per tonne from its previous close.

The spot copper price in Changjiang was up by 0.1% at 47,310-47,340 yuan per tonne and the LME/Shanghai copper arbitrage ratio was at 8.02.

Precious metals
The precious metals were for the most part weaker this morning, with spot gold off by 0.3% at $1,458.73 per oz, silver was down by 0.7% at $16.88 per oz, palladium was down by 0.1% at $1,837.90 per oz, while platinum was up by 0.2% at $894.40 per oz.

Wider markets

The spot Brent crude oil price has consolidated after Friday’s sharp fall, it was recently quoted at $61.20 per barrel, down from last week’s high of $64.30 per barrel.

The yield on benchmark US 10-year treasuries has picked up and was recently quoted at 1. 8430% compared with around 1.7671% at a similar time last Thursday. The German 10-year bund yield was also firmed and was recently quoted at -0.3050%, compared with -0.3256% at a similar time on Thursday.

Asian equities were stronger this morning: the Nikkei (+1.01%), the Kospi (+0.19%), the Hang Seng (+0.34%), China’s CSI 300 (+0.19%) and the ASX 200 (+0.24%).

This follows a mixed performance in Western markets on Friday, where in the United States, the Dow Jones Industrial Average closed down by 0.4% at 28,051.41; in Europe, the Euro Stoxx50 closed up by 0.2% at 3,711.11.

The dollar index is consolidating in high ground and was recently quoted at 98.32. The index has been choppy since early November and has been within a 97.16-to-98.55 range.

The other major currencies we follow are for the most part consolidating: the euro (1.1017), the Australian dollar (0.6779 and sterling (1.2920), while the yen (109.65) is weaker.

The yuan, at 7.0436 is at the low end of its recent range.

Key data

Dominating today’s economic calendar is manufacturing PMI data that is due out across Europe and the US. In addition, there is data on US construction spending and ISM manufacturing prices.

European Central Bank president Christine Lagarde is speaking at 2pm London time.

Today’s key themes and views
Better economic data in China bodes well for a recovery in demand for the metals but the state of trade talks is still uncertain and US President Donald Trump’s signing of the Hong Kong Human Rights and Democracy Act could delay an early signing. For now the metals remain quite mixed while they trade their own fundamentals. Overall, we expect the Chinese PMI data to underpin a firmer tone.

Gold prices are consolidating within their three-month downward trend, support is evident around the $1,450-per-oz level but a retest of support looks likely.