Statistics

METALS MORNING VIEW – Gold prices rally, base metals hold up well considering poor Chinese PMI data

Date Aug 24 2015 09:16:09
Aug.24,2015(SHMET)--

Precious metals were stronger yesterday with average gains of two percent with gold prices up 1.9 percent and the others up between 1.7 and 2.2 percent – concerns about China and emerging markets causing contagion in broader markets seems to have refocused investors’ interest in bullion.

 

The base metals were mixed yesterday, closing with average gains of 0.4 percent, copper led on the upside with a 1.7 percent gain to $5,090, aluminium, zinc and lead were firmer, while nickel and tin were down an average of 0.9 percent.

 

This morning the gold prices are leading the way on the upside with a 0.8 percent gain to $1,164.40, the rest are up between 0.4 and 0.7 percent.

 

Base metals are mixed this morning, but generally little changed with copper off 0.2 percent at $5,077.50, the rest are up between 0.1 and 0.3 percent. Volume has been average with 3,883 lots traded as of 06:05 BST – so far this week volume at this time of day has averaged 3,212 lots, down from an average of 10,523 lots last week, so the markets do seem to have settled down after the post-Chinese devaluation gyrations.

 

In China, the base metals are for the most part firmer by an average of 0.6 percent with copper up the most with a 1.1 percent gain to Rmb 38,990, while nickel and tin are negative, with tin down 1.2 percent and nickel off 0.4 percent. The latter two may be off as China has forced some heavy industry to halt production to clean the air around Beijing, this is especially affecting the steel industry, which could be impacting the stainless steel and tin-plating industries.

 

Spot copper in Changjiang is up 0.9 percent at Rmb 39,100-39,200, the backwardation with the October contracts is at an equivalent of $32 per tonne and the LME/Shanghai copper arb ratio is at 7.77, which means the arb window is open – this finally seems to be underpinning copper, but reports suggest copper is being imported for financial reasons, rather than for consumption – that said, perhaps the SRB are also in the market.

 

Other metals in China are mixed, gold is up 3.2 percent, silver is up 1.9 percent, steel rebar is unchanged, while iron ore is weaker at $55.80.

 

Equities around the global are now in retreat as concerns about China and emerging markets and the possible contagion from these regions to developed markets seems to be weighing on sentiment. Yesterday, the Euro Stoxx 50 closed off 2.2 percent and the Dow closed down 2.1 percent and Asia is down heavily this morning with the Nikkei off 2.8 percent, the Hang Seng is off 2.4 percent, the CSI 300 is down 4.4 percent and the Kospi is off 1.7 percent. The weakness looks set to circumnavigate the globe again as the pre-market Dax is off around 3 percent.

 

Currencies – despite continuing emerging market currency weakness the dollar index is falling too, last at 95.44, while the euro, sterling and yen are stronger at 1.1290, 1.5696 and 122.87. The aussie is flat-lined at 0.7305, the rouble is weak at 67.44, as is the yuan at 6.4522 and the rupee, rupiah and rand are all weaker, while the real is consolidating in low ground.

 

The economic data is focused on flash PMI – so far Japan and China’s manufacturing PMIs have come in lower than expected at 51,9 and 47.1 respectively. Later we get manufacturing and services PMI data out across Europe and the US, with data on UK public sector borrowing requirements and EU consumer confidence – see table below for more details.

 

Given the poor Chinese PMI data it is somewhat surprising that the base metals are not weaker, but it looks as though a lot of bad news is now priced-in. The rallies underway are likely to be driven by non-fundamental factors, such demand for financial reasons in China and general short-covering. We have been expecting short-covering rallies and now these seem to be getting underway. Given how bearish sentiment has been, there may be a considerable counter-trend move, but conversely the bearish fundamentals are likely to encourage scale up selling too. For now, we expect the rallies to run further.

 

Gold prices are leading a broad based rally in the precious metals driven by safe-haven demand, but in turn that is likely to be fuelled by short-covering. As the fund gross short positions have become large there may well be room for considerable rallies.

 

 

 

Overnight Performance

BST 06:05:55 +/- +/- % Lots

Cu 5077.5 -12.5 -0.2% 1731

Al 1573 5 0.3% 1158

Ni 10350 15 0.1% 641

Zn 1814 1 0.1% 185

Pb 1710 4 0.2% 139

Sn 15335 40 0.3% 29

Steel 300 0 0.0% Total

  Average (BM ex-Steel) 0.1% 3883

Gold 1164.4 9.5 0.8%

Silver 15.64 0.11 0.7%

Platinum 1034.7 3.7 0.4%

Palladium 624.5 3.5 0.6%

  Average PM 0.6%

 

 

SHFE Prices 6:06 BST Change % Change

Cu 38990 430 1.1%

AL 12035 45 0.4%

Zn 14830 100 0.7%

Pb 13350 20 0.2%

Ni 80600 -360 -0.4%

Sn 106000 -1270 -1.2%

Average change (base metals) 236.5 0.1%

Rebar 2033 0 0.0%

Au 242.8 7.45 3.2%

Ag 3528 66 1.9%

 

 

Economic Agenda

BST Country Data ACTUAL Expected Previous

2:35am JPY Flash Manufacturing PMI 51.9 52.10 51.20

2:45am CNY Caixin Flash Manufacturing PMI 47.1 48.10 47.80

 7:00am EUR GfK German Consumer Climate 10.20 10.10

8:00am EUR French Flash Manufacturing PMI 49.8 49.6

8:00am EUR French Flash Services PMI 52.1 52

8:30am EUR German Flash Manufacturing PMI 51.7 51.8

8:30am EUR German Flash Services PMI 53.7 53.8

9:00am EUR Flash Manufacturing PMI 52.3 52.4

9:00am EUR Flash Services PMI 54.10 54.00

9:30am GBP Public Sector Net Borrowing -2.3B 8.6B

2:45pm USD Flash Manufacturing PMI 53.9 53.8

3:00pm EUR Consumer Confidence -7 -7

 

Edited by SHMET

METALS MORNING VIEW – Base metals struggle as it remains a buyers’ market

Date Aug 19 2015 09:05:20
Aug.19,2015(SHMET)--

Recap of yesterday - Metals closed down an average of 0.6 percent yesterday, tin bucked the trend with a 0.6 percent gain and nickel was up slightly, while the others were off between 0.6 percent for aluminium and 1.8 percent for lead – copper closed off 1.1 percent at $5,115. Precious metals for the most part edged higher yesterday with gold, silver and platinum up an average of 0.4 percent, while palladium dropped 0.5 percent. The gold price ended the day at $1,117.

 

This morning - The base metals are mixed but off an average of 0.3 percent led by a 1.4 percent drop in tin, nickel is off 0.7 percent, copper is down 0.2 percent at $5,106.50, while zinc is up 0.1 percent and aluminium and lead are up 0.3 percent. Volume remains light with 2,482 lots traded, well down from last week’s average at this time of day of 10,523 lots. The continuing drift in prices highlights that it is a buyers’ market, with buyers not in any hurry to buy, while sellers need to take what bids there are.

 

Precious metals are slightly firmer with the PGMs up 0.4 percent, gold up 0.1 percent at $1,118.50 and silver little changed at 15.29. The precious metals are doing well to hold up as the dollar is firmer.

 

In Shanghai, the base metals are for the most part weak with zinc off 0.8 percent, copper and tin are down 0.7 percent, with copper at Rmb 38,970, aluminium is off 0.5 percent and nickel is down 0.2 percent, while lead is bucking the trend with a 0.7 percent gain.

 

Spot copper in Changjiang is unchanged at Rmb 39,150-39,280, the backwardation with the October contracts is at an equivalent of around $50/tonne, while the LME/Shanghai copper arb ratio is at 7.67, so the arb window is open, not that it it giving much support to LME copper prices.

 

Equities managed to get some lift yesterday with the Euro Stoxx 50 up 0.2 percent and the Dow closed up 0.4 percent, while Asia is weaker this morning led by a 1.5 percent drop in the CSI 300, the Nikkei is off 0.1 percent, the Hang Seng is off 0.4 percent and the Kospi is down 0.3 percent.

 

Currencies – the dollar is climbing again with the dollar index at 96.95, the euro is drifting lower, last at 1.1058, as is sterling at 1.5580, while the aussie and yen are flat at 0.7366 and 124.47, the rouble is slightly firmer at 64.43 and the yuan is little changed at 6.4450. The emerging market currencies remain weak following China’s devaluation; this is an area to monitor to see if the fallout is escalating.

 

Data out overnight showed a mixed picture on housing in China. New home prices fell an average of 3.7 percent in July from a year earlier, but this was less of a decline than the 4.9 percent seen in June, or the peak of 6.1 percent seen in March and April.  But, new home prices climbed in 31 out of the 70 cities monitored, which was up from 27 previously, they dropped in 29 and were flat in 10. So perhaps there are some signs of a recovery underway.

 

Data out today is focused on UK price data, which may throw light on when the Bank of England might start to tighten monetary policy, while US data includes housing starts and building permits – see table below for more details.

 

The base metals remain on a back footing, the path of least resistance continues to the downside, the markets look oversold and are vulnerable to short-covering, but sentiment remains bearish and so far there has been no catalyst to prompt enough buying to trigger short-covering rallies. The real lack of bullishness comes from the weak outlook for Chinese demand, so it would take a change there to change sentiment.

 

For now bullish supply side developments continue to have little effect, whether it be supply disruptions in copper or nickel, or signs of a deficit developing in zinc, with ILZSG data now showing two months of supply deficit. We are not even sure whether a weaker dollar would have too much of an impact on the base metals. Today’s FOMC Meeting minutes are likely to keep the focus on September for a Fed rate rise, but these minutes where for a meeting held before the Chinese devaluation so the market is likely to take that into account when it deciphers the minutes.

 

The precious metals continue to hold up well, especially gold and platinum, while palladium and silver are drifting a bit more. For now, we feel the gold price is being underpinned by concerns that the Chinese devaluation may be the thin end of the wedge. 

 

 

 

Overnight Performance                

BST       06:03:05       +/-   +/- %     Lots

Cu  5106.5   -8.5 -0.2%     1013

Al    1570.5   4.5  0.3%      458

Ni    10560    -70  -0.7%     600

Zn   1815      1     0.1%      258

Pb   1725      4.5  0.3%      140

Sn   15300    -210       -1.4%     13

Steel     300 0     0.0%      Total

      Average (BM ex-Steel)      -0.3%     2482

Gold       1118.5    1.5  0.1%     

Silver     15.29     0     0.0%     

Platinum       998.9     3.9  0.4%     

Palladium     614.2     2.2  0.4%     

      Average PM       0.2%     

 

 

SHFE Prices 6:07 BST          Change % Change

Cu  38970    -270       -0.7%

AL 12015    -65  -0.5%

Zn   14790    -115       -0.8%

Pb   13370    90   0.7%

Ni    81800    -200       -0.2%

Sn   107160  -740       -0.7%

Average change (base metals)      236.5          -0.4%

Rebar    2056      -18  -0.9%

Au   232.9     0.8  0.3%

Ag   3459      -11  -0.3%

 

 

 

 

Economic Agenda

BST       Country Data      ACTUAL       Expected      Previous

9:30am  GBP      CPI y/y        0.0%      0.0%

9:30am  GBP      PPI Input m/m          -1.8%     -1.3%

9:30am  GBP      RPI y/y        1.0%      1.0%

9:30am  GBP      Core CPI y/y      0.8%      0.8%

9:30am  GBP      HPI y/y        5.9%      5.7%

9:30am  GBP      PPI Output m/m       -0.1%     0.0%

1:30pm  USD      Building Permits       1.23M    1.34M

1:30pm  USD      Housing Starts         1.19M    1.17M

 

Edited by SHMET

METALS MORNING VIEW – Metals under pressure ahead of key US employment report

Date Aug 10 2015 08:44:34
Aug.10,2015(SHMET)--

Base metals continued to move lower yesterday, posting an average loss of 0.3 percent, but it will be remarked that they reversed some of their losses during the second half of the day. The ongoing weakness in the base metals complex reflects deflationary pressure stemming from the steep sell-off in energy prices, and a cautious investor sentiment ahead of the release of the US employment report. Zinc was the worst performing base metal, down 1.3 percent, followed by lead (-0.6 percent), aluminium (-0.3 percent), and copper (-0.1 percent). On the other hand, nickel posted a modest gain of 0.2 percent, while tin finished the day unchanged.

 

In contrast, the precious metals complex held relatively better, partly reflecting the drop in equities in so far as precious metals tend to be negatively correlated with equities. Further, money managers, who had already sold aggressively the complex, were likely not comfortable with taking on additional short positions ahead of key US employment report, which could influence significantly the US dollar and therefore the precious metals markets.

 

This morning, base metals are slightly weaker amid thin volumes, led by copper, down 0.4 percent, followed by nickel and zinc, down 0.3 percent each. Lead is down 0.2 percent, aluminium is off 0.1 percent, while tin remains unchanged. On the other hand, the precious metals complex is trading higher, with silver and platinum up 0.4 percent each, palladium up 0.3 percent, although gold is off 0.1 percent.

 

In Shanghai, the July base metals contracts are weaker, with zinc leading the declines (-1.4 percent). Nickel is down 0.9 percent, copper is off 0.8 percent, while aluminium and lead are down 0.7 percent and 0.2 percent, respectively. Tin is the only metal posting a gain this morning, up 0.4 percent. Meanwhile, spot copper in Changjiang is down 0.7 percent at Rmb 38,250-38,400, while the backwardation with the futures is at $84 per tonne and the LME/Shanghai copper arb ratio is slightly up from yesterday at 1 to 7.43, which indicates that the arb window is now open to most traders. In contrast, the precious metals complex is marginally firmer, with gold and silver up 0.3 percent and 0.2 percent, respectively.

 

Bonds – Government bonds rallied strongly on Thursday, pushing yields lower, as the sell-off in broad equities likely prompted investors to seek safe-haven assets, such as bonds, while the sharp decline in crude oil prices continued to push inflation expectations down, leading investors to increase their exposure to bonds, which tend to perform better in a low inflation environment. As such, the US 10-year yield fell 3 basis points (or 1.51 percent) at 2.24 percent. In the eurozone, the Germany 10-year yield dropped 4 basis points (or 5.97 percent) at 0.71 percent, the France 10-year yield closed down 5 basis points (or 5.07 percent) at 1.01 percent, while the Portugal 10-year yield was down 4 basis points (or 1.72 percent) at 2.46 percent. The relative outperformance of bonds in core countries relative to peripheral countries suggests that investors are still concerned about difficult negotiations between Greece and its creditors for a Greek bailout #3.

 

Stocks – US stocks sold off quite sharply yesterday as investors likely preferred to adopt a cautious stance by reducing their stock exposure ahead of the US employment report released later today in so far as the Federal Reserve’s decision-making process regarding the normalisation of its monetary policy may largely be influenced by the employment situation in July. Similarly, European stocks ended lower after reaching a two-week high yesterday, partly reflecting weakness in the energy sector amid lower oil prices. The Euro Stoxx 50 closed down 0.23 percent at 3,668.  In Asia this morning, equities are stronger despite the sell-off in US and European equities yesterday. Although the Kospi is down 0.21 percent, the Nikkei 225 is up 0.25 percent after the Bank of Japan (BoJ) decided to maintain its accommodative stance, in line with expectations, the Hang Seng is up almost 1 percent, while the CSI 300 is up 2.22 percent.

 

Currencies – The US dollar moved slightly down against most currencies on Thursday after reaching a three-week high earlier this week (on an intraday basis). The greenback was down against the euro after retail PMI in the eurozone surged to its highest level since January 2011, and against the sterling after the Bank of England revealed that only one of its nine policy makers voted for a rate increase at the August meeting, which likely pushed market expectations for an initial increase in UK rate to later next year. On the other hand, the dollar was down against the Japanese yen, the Canadian dollar, the Mexican peso, and the Chilean Peso. On net, the US dollar index (DXY) closed down 0.16 percent at 97.8060.

 

The economic agenda will be dominated by the release of the US July employment report at 1:30pm, UK time. Meanwhile, the Bank of Japan held its monetary policy meeting yesterday and today, and released its latest monetary policy statement, indicating that it will not increase its monetary policy stance, rather, it will continue to increase its monetary base at an annual pace of 80 trillion yen, suggesting that BoJ Governor Kuroda is confident that inflation will gradually move toward 2 percent over the medium term without the need to expand further monetary stimulus. Moreover, macroeconomic data already released today indicated that Germany recorded a surplus of 22.0 billion euros in June, below market expectations of 23.2 billion euros, and down from a 22.8-billion euro surplus last month, while its industrial production declined 1.4 percent in June, far below market expectations of a 0.3 percent, and down from 0.0 percent in May.

 

 

 

Base metals continue to remain vulnerable to further downside, reflecting weak investor sentiment due to global deflationary pressure stemming from broad-based declines across the commodity markets and the recent weakness in Chinese equities, which is likely to have adverse implications for economic growth in Q3. As such, we believe that the complex will likely continue to weaken further until speculators reach an extreme short positioning, which could therefore lead to a short-covering rally, although we hold the view that a sustainable rally would be possible if and only if a shift in sentiment occurs.

 

As regards the precious metals complex, given that the spec positioning has deteriorated remarkably since June while the market appears to be technically oversold in the near term, it seems to us that shorts are beginning to run out of steam and are currently not inclined to take on additional positions, which increases the likelihood of a short-covering rally, especially in case of weaker-than-anticipated US employment report.

 

Overnight Performance

BST 06:05 +/- +/- % Lots

Cu 5163.5 -21 -0.4% 1989

Al 1590.5 -1 -0.1% 162

Ni 10810 -35 -0.3% 572

Zn 1864 -5 -0.3% 784

Pb 1702.5 -3 -0.2% 108

Sn 15450 0 0.0% 0

Steel 300 0 0.0% Total

  Average (BM ex-Steel) -0.2% 3,615

Gold 1088.8 -0.7 -0.1%

Silver 14.7 0.06 0.4%

Platinum 952.8 3.8 0.4%

Palladium 598 2 0.3%

  Average PM 0.3%

 

SHFE Prices 6:18 BST Change % Change

Cu 37730 -290 -0.8%

AL 11985 -80 -0.7%

Zn 14435 -200 -1.4%

Pb 12845 -30 -0.2%

Ni 80280 -740 -0.9%

Sn 107600 460 0.4%

Average change (base metals) -0.6%

Rebar 2054 -27 -1.3%

Au 219.35 0.6 0.3%

Ag 3216 8 0.2%

 

Economic Agenda

BST Country Data ACTUAL Expected Previous

4:20am Japan Monetary Policy Statement

Tentative Japan BOJ Press Conference

07:00am EU German Industrial Production m/m -1.4% 0.3% 0.0%

07:00am EU German Trade Balance 22.0B 23.2B 22.8B

07:45am EU French Gov Budget Balance -63.9B

07:45am EU French Industrial Production m/m 0.3% 0.4%

07:45am EU French Trade Balance -3.7B -4.0B

01:30pm US Average Hourly Earnings m/m 0.2% 0.0%

01:30pm US Non-Farm Employment Change 220K 223K

01:30pm US Unemployment Rate 5.3% 5.3%

 

Edited by SHMET

GOLD PRICES HOLD ABOVE LOWS, FOCUSED ON DATA

Date Aug 06 2015 09:05:55
Aug.06,2015(SHMET)--

Precious metals were mixed yesterday  with platinum lower by 0.6 percent while silver was up 0.6 percent and gold and palladium were up 0.2 percent with gold prices at $1,087. The base metals closes up an average of 0.5 percent yesterday, with all the metals firmer except tin that was off 1.8 percent. Lead jumped the most with a 2.1 percent rise and copper closed up 0.6 percent at $5,221.

 

This morning the base metals are for the most part slightly weaker with copper off 0.5 percent at $5,194.50, tin is bucking the trend with a 0.3 percent rebound, while the rest are off between 0.1 and 0.3 percent. Volume is light at 2,879 lots.

 

In Shanghai, the base metals are mixed, lead is up 1.1 percent, tin is off 0.9 percent and zinc is up 0.4 percent, while the rest are off 0.1 percent, with copper at Rmb 37,940. Spot copper in Changjiang is up 0.1 percent at Rmb 38,400-38,550, the backwardation is at an equivalent of $98 per tonne and the LME/Shanghai copper arb ratio is 7.41 for nearby dates, which means the arb window is probably just open to some traders.

 

Gold and silver are down 0.3 percent in Shanghai, steel rebar is unchanged at Rmb 2,085, while elsewhere iron ore is around $55 and Brent crude oil is around $50.40.

 

Equities in Europe and the US remained weaker yesterday with the Euro Stoxx 50 down 0.4 percent and the Dow off 0.3 percent and Asia this morning is mixed with China’s CSI 300 down two percent, while the Nikkei is up 0.6 percent, the Hang Seng is up 0.2 percent and the Kospi is up 0.1 percent.

 

Currencies – the dollar remains upbeat with the dollar index at 98.06, most lately boosted by comments from FOMC member Dennis Lockhart that he feels September will be an “appropriate time” for the Fed to raise rates. Other currencies are weaker with the euro at 1.0864, sterling at 1.5536, the yen at 124.37 and the aussie at 0.7353, after a peak of 0.7428. The rouble has strengthened from recent weakness, last at 62.53. IMF staff have reportedl. said that the IMF should put off any move to add the yuan to its currency basket until after September 2016, the IMF is scheduled to make a decision in November – the yuan is little changed at 6.2093.

 

The economic agenda is busy, the focus is on final services PMI that is out across China, Europe and the US. Data out already shows China’s Caixin Services PMI climbed to 53.8 from 51.8 – so at least China’s measures to transform the economy from an export based one to a consumer driven one seems to be making headway. In addition, there is data on Italian industrial production, EU retail sales and US data includes the ADP non-farm employment change, the trade balance and cude oil inventories – see table below for more details.

 

The precious metals are holding in low ground just above recent lows – the latest firmness in the dollar does not seem to have been a catalyst for another push lower, at least not yet. Gold prices are likely to be waiting for this week’s US jobs data, which is likely to be the next pointer as to when the Fed makes its first move. The markets therefore remain vulnerable to both the upside and downside, the path of least resistance is to the downside, but should prices find reason to rally, then the extended gross fund short position could prompt short-covering.

 

Base metals have found some lift off Monday’s lows, especially lead. The exception being tin that is seeing some consolidation after a strong rebound. The markets are therefore vulnerable as the downward trends dominate, but many metals seem oversold, especially those that are likely to see supply tighten in the months ahead, notably nickel, zinc and lead. In the short term, copper is suffering some supply disruptions, which could well provide some lift to prices, as could the open arb window between LME and Shanghai. So although we are not bullish per se, we would not be surprised to see prices get some lift that in turn could prompt short-covering.

 

 

Overnight Performance

BST 06:32:09 +/- +/- % Lots

Cu 5194.5 -26.5 -0.5% 1342

Al 1615 -1 -0.1% 133

Ni 10805 -35 -0.3% 503

Zn 1919 1 0.1% 555

Pb 1732.5 -3.5 -0.2% 336

Sn 15750 50 0.3% 10

Steel 300 0 0.0% Total

Average (BM ex-Steel) -0.1% 2879

Gold 1086.9 -0.1 0.0%

Silver 14.54 -0.01 -0.1%

Platinum 947 -6 -0.6%

Palladium 595.9 -0.1 0.0%

Average PM -0.2%

 

 

SHFE Prices 6:39 BST Change % Change

Cu 37940 -30 -0.1%

AL 12095 -15 -0.1%

Zn 14695 65 0.4%

Pb 12905 145 1.1%

Ni 80430 -70 -0.1%

Sn 107460 -940 -0.9%

Average change (base metals) 236.5 0.1%

Rebar 2085 0 0.0%

Au 218.65 -0.6 -0.3%

Ag 3197 -11 -0.3%

 

 

Economic Agenda

BST Country Data ACTUAL Expected Previous

12:01am UK BRC Shop Price Index y/y -1.4% -1.3%

2:45am China Caixin Services PMI 53.8 52.2 51.8

 8:15am Spain Spanish Services PMI 55.8 56.1

8:45am Italy Italian Services PMI 53.2 53.4

8:50am France French Final Services PMI 52.1 52

8:55am Germany German Final Services PMI 53.7 53.7

9:00am EU Final Services PMI 53.8 53.8

9:00am Italy Italian Industrial Production m/m -0.2% 0.9%

9:30am UK Services PMI 58.1 58.5

10:00am EU Retail Sales m/m -0.1% 0.2%

1:15pm US ADP Non-Farm Employment Change 216K 237K

1:30pm US Trade Balance -42.8B -41.9B

2:45pm US Final Services PMI 55.2 55.2

3:00pm US ISM Non-Manufacturing PMI 56.3 56

3:30pm US Crude Oil Inventories -1.3M -4.2M

 

Edited by SHMET

METALS MORNING VIEW – Metals under pressure amid hawkish Fed stance

Date Jul 31 2015 09:08:54
Jul.31,2015(SHMET)--

Base metals edged down yesterday after pushing noticeably higher on Tuesday, reflecting a stronger US dollar, which exerted downward pressure on the complex as well as a cautious investor sentiment ahead of the release of the July FOMC statement, which proved to be a bit less accommodative than investors had anticipated. Except for copper, which was the only base metal posting a gain, albeit modest (+0.3 percent), the rest of the complex finished lower, with zinc, down 1.2 percent, followed by lead and tin, down 0.8 percent and 0.6 percent, then nickel, down 0.4 percent, and aluminium, off 0.3 percent.

 

In contrast, precious metals were firmer, on net, posting an average gain of 0.5 percent. Taking a closer look, silver performed the most (+1.0 percent), partly reflecting short-covering due to its extreme short speculative positioning; followed by platinum (+0.5 percent), then palladium (+0.3 percent), while gold performed the worst, up only 0.2 percent. The positive market action, albeit tepid, was likely the result of a pick-up in long speculative positions in anticipation that the Fed would not likely make significant changes in its July monetary policy statement given insufficient information received since the prior FOMC meeting, in June.

 

This morning, base metals are broadly unchanged amid thin volumes, with lead and nickel, up 0.2 percent each, followed by zinc, up 0.1 percent. On the other hand, aluminium is down 0.2 percent, copper is off 0.1 percent, while lead remains flat. The precious metals complex is trading slightly lower, with gold and silver down 0.3 percent each, while platinum is up 0.4 percent, and palladium is unchanged.

 

In Shanghai, the July base metals contracts are modestly weaker, with zinc and tin leading the declines (-0.7 percent each), followed by nickel (-0.6 percent), aluminium (-0.5 percent), and copper (-0.2 percent). Lead is the only metal posting a gain this morning, albeit modest at 0.6 percent. Meanwhile, spot copper in Changjiang is down 0.8 percent at Rmb 39,300-39,550, while the backwardation with the futures is at $99.8 per tonne and the LME/Shanghai copper arb ratio is slightly up at 1 to 7.76, suggesting that the arb window is open to most traders. In the precious metals complex, silver continues to outperform gold, with the former up 0.4 percent and the latter down 0.5 percent.

 

Bonds – US government bonds sold off on Wednesday, pushing Treasury yields higher amid a risk-on environment after the central bank of China (PBOC) took a number of measures in a bid to restore stability in the Chinese equity market. Although Treasury yields pushed lower following the release of the FOMC statement (which could suggest a more dovish than anticipated statement), this counterintuitive move was eventually reversed, as evidenced by the US 10-year, which closed up 2.52 basis points (or 1.12 percent) at 2.2571 percent, and which continues to push higher this morning (+2.71 basis points or 1.19 percent), currently trading at 2.3130 percent. In fact, investors likely interpreted the latest US monetary policy statement as slightly more hawkish than expected in so far as the Fed upgraded its assessment of the US economic outlook, particularly with respect to labor market conditions. Specifically, the FOMC indicated that “the labor market continued to improve, with solid job gains and declining unemployment”, which could suggest that the Fed remains confident that economic conditions may warrant a less accommodative monetary policy as soon as September. Against this backdrop, the US 10-yiear finished the day up 2.52 basis points (or 1.12 percent) at 2.2571 percent, and continues to push higher this morning (+2.71 basis points or 1.19 percent), currently trading at 2.3130 percent. Meanwhile, European yields also moved sharply higher, with the Germany 10-year yield up 2.8 basis points (or 4.06 percent) at 0.717 percent, the France 10-year yield up 3.4 basis points (or 3.48 percent) at 1.010 percent, and the Spain 10-year yield up 4.6 basis points (or 2.41 percent) at 1.957 percent.

 

Stocks – Broad equities moved up yesterday, for the second straight day, partly reflecting an improved sentiment after the central bank of China (PBOC) managed to restore stability in Chinese equities, while US equities accelerated their gains after the release of the US monetary policy statement, as although the FOMC’s stance was a little more hawkish than expected, the Fed did not provide specific details regarding the timing of the initial rate increase, which likely provided some relief in the near term to stock investors. As such, US equities posted strong gains, with the S&P closing up 0.73 percent at 2,109 and the Dow Jones ending up 0.69 percent at 17,751. European equities also trended higher, partly boosted by positive earnings results from a number of companies, such as PSA Peugeot Citroën, with the Euro Stoxx 50 ending up 0.60 percent at 3,576.  In Asia this morning, equities are mixed. Although the Nikkei 225 is up almost 1 percent, partly reflecting a weaker yen after the release of the FOMC statement, the Hang Seng is down 0.07 percent, the CSI 300 is off 0.19 percent, while the Kospi is pushing lower (-0.85 percent).

 

Currencies – The foreign exchange value of the dollar continued to increase against the currencies of major US trading partners yesterday, as the return to a risk-on environment, in which riskier assets such as equities tend to perform well, resulted in a pick-up in euro and yen carry trade positions, pushing these so called key funding currencies lower; and therefore strengthening the greenback. The appreciation of the dollar was underpinned by the release of the FOMC statement as the Fed’s more hawkish stance likely prompted investors to continue to see the September FOMC meeting as the most likely time for the start of monetary policy normalisation, although the statement did not provide specific information on the future path of the federal funds rate (FFR). The dollar appreciated against the yen, the euro, the sterling, the Canadian dollar, the Aussie, and the yuan, but it was down against a number of emerging market (EM) currencies, including the Russian rubble, the Mexican peso, and the Brazilian real. On net, the US dollar index (DXY) closed up 0.40 percent at 97.158, but it is still down from 97.2440 at the start of the week.

 

The economic agenda is quite busy today. Economic data published earlier indicated that Japan’s prelim industrial production increased 0.8 percent month-on-month in June, above market expectations of 0.4 percent, and up from an upwardly revised -2.1-percent growth in May. Economic data published later today will include German prelim CPI for July, German unemployment for June, Spanish flash CPI and GDP for July, US goods trade balance for June, US unemployment claims for the week ending July 24, and the Q2 US GDP report, including advance GDP and advance GDP price index.

 

 

 

Although the release of the July FOMC statement resulted in a strong appreciation of the US dollar, the base metals complex held relatively well. We continue to expect base metals to strengthen further after strong losses earlier in July on the back of short-covering rather than a sustainable shift in sentiment reflecting a reassessment of the longer-term forward fundamentals. That said, the upside potential driven by short-covering should be restrained by a continuing appreciation of the foreign exchange value of the dollar.

 

In line with our expectations, the market action within the precious metals complex has been fairly positive despite the release of the less accommodative than anticipated US monetary policy statement, suggesting that the extreme short speculative positioning before the FOMC meeting elicited some short-covering activity once the FOMC statement was released. Although we acknowledge that further short-covering could continue to drive prices higher in the near term, the risks to prices are titled to the downside in the near term in so far as we believe that the Fed is progressively moving toward a hawkish stance, which will likely translate into an initial increase in the FFR at the September 2015 FOMC meeting.

 

BST       05:32     +/-   +/- %     Lots

Cu  5322      -4.5 -0.1%     1156

Al    1656      -3.5 -0.2%     337

Ni    11260    20   0.2%      627

Zn   1964.5   1.5  0.1%      212

Pb   1721      0.5  0.0%      85

Sn   16200    30   0.2%      19

Steel     300 0     0.0%      Total

      Average (BM ex-Steel)      0.0%             2,436

Gold       1093.1   -3.7 -0.3%    

Silver     14.76     -0.05      -0.3%    

Platinum       988.4     4.4  0.4%     

Palladium     620.9     -0.1 0.0%     

      Average PM       -0.1%    

 

 

SHFE Prices 5:32 BST          Change % Change

Cu  38680    -90  -0.2%

AL 12300    -60  -0.5%

Zn   14975    -105       -0.7%

Pb   13160    80   0.6%

Ni    83420    -500       -0.6%

Sn   110740  -800       -0.7%

Average change (base metals)                 -0.4%

Rebar    2092      -6    -0.3%

Au   220.75   -1.05      -0.5%

Ag   3247      14   0.4%

 

 

Economic Agenda

BST       Country Data      ACTUAL       Expected      Previous

00:50am       Japan    Prelim Industrial Production m/m   0.8%    0.4%      -2.1%

-      EU  German Prelim CPI m/m       0.2%      -0.1%

8:00am  EU  Spanish Flash CPI y/y            0.1%      0.1%

8:00am  EU  Spanish Flash GDP q/q         1.1%      0.9%

8:55am  EU  German Unemployment Change         -5K -1K

1:30pm  US  Advance GDP q/q           2.6%      -0.2%

1:30pm  US  Goods Trade Balance            -      -

1:30pm  US  Unemployment Claims          268K      255K

1:30pm  US  Advance GDP Price Index q/q      1.5%      0.0%

 

Edited by SHMET
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