MORNING VIEW: Strong Chinese manufacturing data underpins LME base metals prices

Base metals prices on the London Metal Exchange were once again mainly stronger this morning, Tuesday December 1, helped by strong Chinese Caixin manufacturing purchasing managers’ index (PMI) data, but Shanghai Futures Exchange prices were more polarized.

  • Chinese Caixin manufacturing PMI climbed to 54.9 in November, up from 53.6 in October
  • Japan’s manufacturing PMI climbed to 49 in November, up from 48.3 in October

Base metals
The three-month base metals prices on the LME were for the most part firmer, the exception was tin that was down by 0.4% at $18,600 per tonne, while the rest were up by an average of 0.6% – led by a 1.2% gain in copper that was recently trading at $7,659 per tonne.

Volumes traded on the LME have returned to more normal levels, 6,044 lots had traded by 5.50am London time, compared with 18,171 lots traded at a similar time on Monday.

The most-traded base metals contracts on the SHFE were quite polarized with January aluminium up by 1.5% and January copper up by 0.6% at 57,240 yuan ($8,704) per tonne, while February nickel, January tin and January lead were down by an average of 2.1% and January zinc was little changed.

Precious metals

Spot gold prices were stronger this morning, up by 0.4% at $1,786 per oz, while silver ($22.86 per oz) was up by 0.9%, platinum ($987 per oz) was up by 2% and palladium ($2,396.50 per oz) was up by 1.3%.

Wider markets
The yield on US 10-year treasuries has edged higher, it was recently quoted at 0.84%, up from 0.83% at a similar time on Monday.

Asia-Pacific equities were up across the board this morning: the CSI (+1.72%), the Nikkei (+1.34%), the Hang Seng (+0.96%), the Kospi (+1.64%) and the ASX 200 (+1.08%).

The US dollar index continues to trend lower, although it did get a short-lived boost on Monday. It was recently at 91.82, after setting a low of 91.50 early on Monday. This was the lowest the index had been since April 2018.

The other major currencies were off recent highs, but remain in high ground overall: the euro (1.1958), the Australian dollar (0.7367), sterling (1.3364) and the yen (104.34).

Key data
In addition to the PMI data highlighted above, there is a barrage of PMI data out across Europe and the United States. In addition, there is data on UK house prices, German unemployment, EU consumer prices (CPI), US construction spending and US total vehicles sales.

In addition, there is an Economic and Financial Affairs Council (Ecofin) meeting and various central bankers are scheduled to speak including, US Federal Reserve Chairman Jerome Powell, European Central Bank President Christine Lagarde and Federal Open Market Committee member Lael Brainard.

Today’s key themes and views
All the base metals on the LME, with the exception of tin, have set fresh highs for the year this week and as such the uptrends look strong. Copper and aluminium look the strongest this morning, but the likes of zinc, lead, nickel and tin lost upward momentum on Monday and therefore may be tiring in the short term.

Given the strength of sentiment, the positive medium-term outlook and an extremely liquid climate rallies could extend well beyond where value lies. Needless to say we think prices have run ahead of the fundamentals in the short term.

Gold prices set fresh multi-month lows at $1,765.50 per oz on Monday and are now consolidating above that level. With broader markets continuing to see strength and sentiment bullish, gold may remain under pressure for longer. There are still valid longer-term reasons to be bullish for gold, but in the short term gold faces strong headwinds.

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