Market and product

The base metals were weaker across the board yesterday as concerns that the Fed may be getting more hawkish again moved markets more into risk-off mode. The metals closed off an average of 0.8 percent, led by a 1.9 percent drop in lead to $1,852.50 and copper closed off one percent. Precious metals were also weaker, closing down an average of 1.4 percent.

This morning the base metals are consolidating with some dip buying noted. On average the metals are up 0.2 percent, led by gains of 0.5 percent in zinc and 0.4 percent in lead. ILZSG data showed lead move into a small supply deficit in June, while zinc’s deficit expanded. Copper is up 0.1 percent at $4,765. Volume has been low at 2,979 lots, interestingly zinc has traded more than copper.

Silver has rebounded this morning, it is up 0.4 percent at $18.98, gold prices are up slightly at $1,338.30, while the PGMs are weaker by an average of 0.4 percent.

In Shanghai, the base metals are mixed, zinc is up 0.9 percent, tin and aluminium are down 0.4 percent, copper is off 0.2 percent at Rmb 37,160, while the others are little changed. Spot copper in Changjiang is off 0.3 percent at Rmb 37,050-37,150, which means the spread is in a small contango, while the LME/Shanghai copper arb ratio is firmer at 7.8.

In other metals in China, iron ore prices are up 2.5 percent, steel rebar is up 1.4 percent, gold prices are off 0.3 percent and silver is off one percent. The strength in iron ore prices, which are around $61 per tonne combined with strong steel prices, do suggest some aspects of China’s economy may be stronger than the economic data portrays. Brent crude prices in international markets are weaker at $48.72.

Equities were weaker yesterday with the Euro Stoxx 50 off 0.3 percent and the Dow closed down 0.1 percent. Asia is mixed this morning with the Nikkei down 0.7 percent, the Hang Seng is off 0.3 percent, the ASX 200 is up 0.7 percent, the Kospi is up 0.4 percent and the CSI 300 is up 0.3 percent. Overall, it does not look as though the threat of a more hawkish Fed has turned risk-off too much. The FedWatch data shows a 15 percent chance of a rate rise in September, up from 12 percent on Friday, with a 39.9 percent chance of a rise in December, up from 39.1 percent on Friday.

In FX, the dollar index has eased back from Monday’s rally, it is last at 94.37, compared with a peak yesterday of 94.96, the euro is firmer at 1.1338, as are sterling at 1.3163, the yen at 100.10 and the aussie at 0.7643. The yuan is firming after yesterday’s weakness, last at 6.6542, most of the other emerging market currencies we follow are mixed with the ones with exposure to oil looking weaker, while the others are firmer.

The economic agenda is busy with the focus on flash PMI data out across Europe and the US. In addition, there is UK data on CBI industrial order expectations, Chinese leading indicators, EU consumer confidence, US new home sales and the Richmond manufacturing index – see table below for more details.

The base metals all remain capped, but zinc and tin are tackling overhead resistance and are well placed to break higher, while the rest are consolidating at lower numbers with copper and nickel testing to see where underlying support is, while lead and aluminium are finding support in mid-ground. For now we see any weakness as consolidation and generally with trading conditions thin the markets seem to be holding up well.

The industrial precious metals have been retreating, while gold prices continue to consolidate within their sideways range. A slight pullback in the dollar may well provide support. Given silver’s gap lower yesterday, we wait to see if there is follow through selling/profit-taking, or whether the weaker prices attract bargain hunting.

Fastmarket