MORNING VIEW: Stronger Chinese manufacturing data boosts LME base metals prices

Markets were for the most part upbeat this morning, Tuesday September 1, with all the metals on the London Metal Exchange firmer, as were pre-market major western equity index prices.

China’s Caixin manufacturing purchasing managers’ index (PMI) beat expectations with a reading of 53.1 for August, compared with 52.8 in July. This was enough to send three-month LME copper prices to levels not seen since June 2018, which was when prices began to pullback because the United States-China trade war had started to bite.

  • Asian-Pacific equities were mixed this morning; Japan’s manufacturing remained in contraction mode.
  • China’s Caixin PMI data also showed a rise in new export orders for the first time this year.
  • Manufacturing PMI data out across Europe, the US is likely to provide fresh insight into the state of major economies.

Base metals
The three-month base metals prices on the LME were up by an average of 1.4% this morning, with copper up by 1.5% at $6,773.50 per tonne on good volume of 3,888 lots as of 5.49am London time. Copper prices are now moving into the bottom of the high range that prices held in late 2017 and the first half of 2018, when prices peaked at $7,348 per tonne.

The most-traded base metals contracts on the Shanghai Futures Exchange were also for the most part firmer, the exception was October aluminium that was down by 0.3%, while the rest of the complex was up by an average of 1.1%. October copper was up by 0.8% at 52,430 yuan ($7,653) per tonne.

Precious metals
Spot precious metals prices were stronger this morning with prices up by an average of 3%, led by a 4.6% rise in silver ($28.76 per oz), with gold ($1,989.10 per oz) up by 1.2%, platinum ($950 per oz) up by 2.4% and palladium ($2,285.60 per oz) up by 3.7%.

Wider markets
The yield on US 10-year treasuries was at 0.71% this morning, this showing a some risk-on appetite in markets.

Asian-Pacific equities were mixed this morning: the CSI 300 (+0.18%), the Hang Seng (+0.26%), the Kospi (+0.94%), the Nikkei (-0.01%) and the ASX 200 (-1.52%)

The dollar index continues to trend lower and was recently quoted at 91.81, this is the lowest it has been since April 2018 and will be one of the reasons behind firmer metal prices. The 2018 trough in the dollar index was at 88.25, while the multi-decade low in 2008 was at 70.70.

The other main currencies continue to strengthen at a quick pace this morning: the euro (1.1990), the Australian dollar (0.7408), the yen (105.65) and sterling (1.3416).

Key data
Economic data already out on Tuesday, excluding China’s Caixin PMI mentioned above, showed Japan’s unemployment rate climb to 2.9% in July, from 2.8% in June, Japan’s capital spending fall 11.3% in the second quarter with its final manufacturing PMI for August reading at 47.2, up from 46.6 in July.

Data out later includes manufacturing PMI across Europe and the US, unemployment data for Germany, Italy and the European Union, EU consumer price data , with US data on construction spending and total vehicle sales.

In addition, US Federal Open Market Committee member Lael Brainard is scheduled to speak.

Today’s key themes and views
The combination of good Chinese manufacturing data and a weaker dollar are strong tailwinds for the base metals, all of which are entrenched in strong upward trends, with all bar lead and tin testing limits to the upside this morning. The current economic climate may not justify these price levels at the moment, but the trends are strong and financial markets are full of liquidity looking for a home.

Gold prices have been consolidating since their August 7-12 correction, but prices are once again moving higher this morning. Is the dollar’s weakness a sign that the market is getting increasingly nervous about the longer term implications of all the monetary and fiscal policy measures? If so, then that is also likely to drive gold prices.

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