MORNING VIEW: Metals prices firmer, helped by improvement in Chinese manufacturing PMI

Asian equities were weaker in the morning of Wednesday July 31 on uncertainty on the progress in US/China trade negotiations, although base metals, which have focused more on brighter Chinese manufacturing purchasing managers’ index (PMI) data, rose by an average of 0.4%.

  • Chinese manufacturing PMI rises to 49.7 in July, from 49.4 in June.
  • Busy day ahead for economic data.
  • Market awaits US interest rate decision.

Base metals
Three-month base metals prices on the London Metal Exchange were up across the board this morning, led by a 0.8% gain in the nickel price to $14,425 per tonne. Copper and aluminium prices were both up by 0.5%, with the former at $5,965 per tonne, while the rest are up between 0.1% and 0.3%.

In China, base metals prices on the Shanghai Futures Exchange were mixed with October nickel once again leading on the upside with a 1.3% gain; September aluminium and tin were little changed, while September lead, zinc and copper were weaker by between 0.6% and 0.9%. The copper price fell by 0.6% to 46,930 yuan ($6,818) per tonne.

Spot copper prices in Changjiang were down by 0.9% at 46,760-46,840 yuan per tonne and the LME/Shanghai copper arbitrage ratio was slightly weaker at 7.87, compared with 7.88 on Tuesday.

Precious metals
Spot precious metals prices were working higher again on Wednesday morning and the market is looking robust with gold prices recently quoted at $1,431.05 per oz, little changed from Tuesday’s close, but up from the recent pullback low at $1,411.10. Silver, platinum and palladium are generally holding up well, but gold seems to be in the driving seat.

On the SHFE, the December gold contract was up by 0.5%, while the December silver contract was up by 0.2%.

Wider markets
The spot Brent crude oil price was firmer at $65.19 per barrel this morning, up from $64.12 per barrel at a similar time on Tuesday.

The yield on benchmark US 10-year treasuries was weaker this morning at 2.0480%, compared with 2.0576% at a similar time on Tuesday. The German 10-year bund yield has continued to weaken and was recently at -0.4040%, compared with -0.3960% on Tuesday morning.

In equities, Asian indices were weaker on Wednesday: Nikkei (-0.87%), Hang Seng (-1.31%), Kospi (-0.69%), the CSI 300 (-0.74%) and the ASX200 (-0.47%).

This follows a weaker performance in western markets on Tuesday, where in the United States the Dow Jones Industrial Average closed down by 0.09% at 27,198.02, and in Europe where the Euro Stoxx50 closed down by 1.72% at 3,462.85.

The dollar index is consolidating in high ground and was recently quoted at 98.06. The next resistance is the double top from April (98.35) and May (98.38). Clearance of these levels would target 103.80, the highs from January 2017. We wait to see if the index holds up if the Federal Open Market Committee (FOMC) makes a 25 basis point interest rate cut this evening.

The other major currencies we track are consolidating recent weakness: the euro (1.1158), yen (108.52), the Australian dollar (0.6894) and sterling (1.2160), while the Chinese yuan (6.8867) is slightly firmer.

Key data
There is a heavy economic agenda today. Data already out includes Chinese PMI data: while manufacturing data improved, non-manufacturing PMI fell to 53.7 from 54.2. Other key data showed Germany’s retail sales rose by 3.5%, this after a 1.7% fall previously. Other important data out later includes: consumer price index (CPI) and gross domestic product (GDP) data from Spain, Italy and the European Union as well as German, Italian and EU unemployment data,
US data includes ADP non-farm employment change, employment cost index, Chicago PMI and crude oil inventories.
The FOMC rate decision and statement are out at 7pm London time and the press conference at 7:30pm.

Today’s key themes and views
The metals are consolidating, the next direction we think will be determined by the outcome of the current US/China trade talks. The market seems not to be expecting much, so that combined with generally poor economic data, are probably largely discounted in the price. As such, we would expect the most reaction should the outcome be positive, but the chances of that seem slim.

Gold prices have held up well, especially considering the stronger dollar; indeed prices look well placed to extend gains. Given much uncertainty on financial, economic and geopolitical fronts, there are plenty of reasons why investors may like the insurance that gold offers.

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