MORNING VIEW: Encouraging Chinese data underpins base metals prices

Base metals prices were for the most part firmer this morning, Tuesday September 15, supported by some good Chinese economic data.

  • China’s industrial production climbed by 5.6% year on year in August, after a 4.8% rise in July, while retail sales rose by 0.5% year on year in August, after a 1.1% fall in July.
  • Asian-Pacific equities were mixed, however, with gains in China, Hong Kong and South Korea, but losses in Japan and Australia.

Base metals
Three-month base metals prices on the London Metal Exchange were mainly in positive territory this morning, the exception was tin that was down by 0.1% at $18,105 per tonne. The rest were up by 0.4%, led by a 0.9% rise in zinc ($2,502.50 per tonne), with copper up by 0.3% at $6,798 per tonne.

The most-traded base metals contracts on the Shanghai Futures Exchange were also mainly stronger this morning, with November tin also the one bucking the trend with a drop of 0.4%, while the rest were up by an average of 1%, with October copper up by 0.3% at 52,220 yuan ($7,656) per tonne.

Precious metals
The spot gold price was up by 0.5% at $1,967.01 per oz this morning and from consolidating within a triangle since early-August, prices seem to have broken out to the upside.

Spot silver was up by 1.2% at $27.46 per oz, platinum was up by 1.1% at $968 per oz and palladium was up by 0.5% at $2,323.50 per oz.

Wider markets
The yield on US 10-year treasuries was recently quoted at 0.67%, this after 0.66% at a similar time on Monday. The US treasury yield seems quite stable, suggesting the market is waiting for direction, which may come out of Wednesday’s US Federal Open Market Committee (FOMC) meeting.

Asian-Pacific equities were mixed this morning: the CSI 300 (+0.68%), the Hang Seng (+0.54%), the Kospi (+0.44%), the Nikkei (-0.51%) and the ASX 200 (-0.1%).

The dollar index has started to trend lower again and this morning was quoted at 92.87, this after 93.19 at a similar time on Monday – the range so far in September being 91.73-93.66.

With the dollar weaker, the other major currencies we follow were firmer this morning: the euro (1.1894), sterling (1.2861), the yen (105.67) and the Australian dollar (0.7335).

Key data
In addition to the data mentioned above, China’s fixed asset investment, in the year to August, was down by 0.3%, this after being down by 1.6% in the year to July. China’s unemployment rate fell to 5.6% in August from 5.7% in July.

Data out later includes employment numbers out of the United Kingdom, French consumer prices, European Union and German economic sentiment from the Zentrum fur Europaische Wirtschaftsforschung (ZEW).

US data includes the Empire State manufacturing index, import prices, industrial production and capacity utilization.

Today’s key themes and views
After a pause in uptrends in recent weeks, this week has started to see base metal prices head higher again - none have broken into new highs yet, but the rebounds are looking strong so the upward trends look set to resume. That said, we may need to wait to see what the market’s reaction to Wednesday’s FOMC meet is before we let our guard down. So far, the dips in the metal prices were relatively limited on the downside and short-lived – that suggests the bull market is intact.

While we thought the dips could have lasted longer, it does look like the underlying bullish themes focused on infrastructure and the impact of the liquidity rush are dominating.

The fact gold has broken higher, although connected to the weaker dollar, also suggests that the rising tide of liquidity is lifting all boats.

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