METALS MORNING VIEW – Asian equities rallied, that may reduce fear in the industrial metals

Date 8/27/2015 9:04:56 AM


The base metals were boosted by China’s interest rate and reserve requirement ratio cuts, which led to average gains of 1.1 percent, led by a 2.1 percent rise in copper to $5,056 – the recovery in confidence led to a strong rebound in equity market, at least initially, but this weighed on bullion prices that saw gold and silver fall 0.7 percent, platinum off 0.5 percent and palladium drop 5.3 percent.


This morning, despite a more bullish market in Asia, albeit a volatile one in China, the base metals are off an average of 0.2 percent, led by 0.7 percent falls in copper ($5,022) and zinc, aluminium is off 0.6 percent, lead is off 0.2 percent, while nickel is up 0.2 percent and tin is up 0.7 percent. Volume is stronger at 6,898 lots, indeed it has been stronger all week.


Precious metals are mixed, with bullion off around 0.6 percent with gold at $1,136, the PGMs are firmer with platinum up 0.5 percent at $981.90, while palladium is up 2.1 percent at $547, having fallen heavily yesterday.


In Shanghai, the base metals are for the most part firmer with average gains of 0.6 percent – nickel is the only metal that is lower today, it is down 0.3 percent, while copper is up 1.7 percent at Rmb 39,200 – copper was by far the strongest metal yesterday too, which again suggests the SRB may be in the market. Spot copper is up 0.5 percent at Rmb 39,250-39,400, the backwardation with the October futures is at an equivalent of $30 per tonne, while the LME/Shanghai arb window is open with the arb ratio at 7.83.


Precious metals are weaker in Shanghai with gold off 1.8 percent and silver down 1.2 percent – in other metals, steel rebar is up 0.5 percent and iron ore is steady at $53.45.


Equities had a volatile day yesterday – China’s rate cut gave markets a boost that saw the Euro Stoxx 50 close up 4.7 percen, but the Dow was up 2.7 percent at one stage, but then closed down 1.3 percent. In Asia, the tone is firmer again with the CSI 300 up 3.2 percent, the Nikkei is up 2.8 percent, the Hang Seng is up 0.3 percent, the Kospi is up 2.6 percent and the Australian ASX200 is up 0.6 percent. So if the equities have found a footing then that might calm the fears in the base metals, at least for a while, and in turn that could see some bargain hunting emerge – key then will be whether that leads to short-covering.


Currencies – the change in recent trends seems to be affecting the currencies too with the dollar rebounding, last at 94.21 after a low on Monday of 92.56, the euro is holding below recent highs, last at 1.1487, as is sterling at 1.5705, the yen is at 119.45, the rouble is at 68.92, but the aussie remains weak at 0.7116. The yuan is last at 6.4852 after a low yesterday of 6.5050, while the other emerging market currencies remain weak.


Economic data shows Japan’s Services PPI is firmer at 0.6 percent, later we get UK mortgage approvals, CBI realised sales and US data includes durable goods, crude oil inventories and FOMC member William Dudley is speaking at 1:30 BST.


This morning the base metals are consolidating yesterday’s gains, the downward trends dominate and the rebounds are fragile, but if some stability returns to the broader markets then there may be some relief rallies in the base metals. Much will then depend on whether short-covering gains momentum. Yesterday’s LME COTR data showed some short-covering, but it tended to go hand-in-hand with long liquidation so there was selling and buying, but if fear dies down then the short-covering could dominate for a while.


Gold rallied on safe-haven buying, if the tide has turned in the other markets then gold is likely to pull back to consolidate. With emerging market currencies still weak and in fear of further devaluation then interest in gold may not fade too much. The more industrial precious metals are also likely to benefit should markets become less fearful.




Overnight Performance                

BST       06:41:31       +/-   +/- %     Lots

Cu  5022      -34  -0.7%     3728

Al    1547      -9    -0.6%     1342

Ni    9585      20   0.2%      657

Zn   1725.5   -12.5      -0.7%     999

Pb   1670      -3.5 -0.2%     162

Sn   14200    100 0.7%      10

Steel     300 0     0.0%      Total

      Average (BM ex-Steel)      -0.2%     6898

Gold       1136      -7.4 -0.6%    

Silver     14.58     -0.1 -0.7%    

Platinum       981.9     4.9  0.5%     

Palladium     547 11   2.1%     

      Average PM       0.3%     



SHFE Prices 6:45 BST          Change % Change

Cu  39200    650 1.7%

AL 11860    -5    0.0%

Zn   14475    85   0.6%

Pb   13245    165 1.3%

Ni    74940    -250       -0.3%

Sn   101150  310 0.3%

Average change (base metals)      236.5          0.6%

Rebar    1951      10   0.5%

Au   237.1     -4.25      -1.8%

Ag   3361      -41  -1.2%



Economic Agenda

BST       Country Data      ACTUAL       Expected      Previous

12:50am       JPY SPPI y/y       0.6%      0.4%      0.4%

 9:30am       GBP      BBA Mortgage Approvals       46.0K     44.5K

11:00am       GBP      CBI Realized Sales         19   21

1:30pm  USD      Core Durable Goods Orders m/m       0.3%      0.6%

1:30pm  USD      Durable Goods Orders m/m         -0.4%     3.4%

3:00pm  USD      FOMC Member Dudley Speaks                  

3:30pm  USD      Crude Oil Inventories      1.0M      2.6M



Edited by SHMET