denisovail1986: METALS MORNING VIEW 24/07: Metals mixed, but China’s intervention may provide support

Three-month base metals prices on the London Metal Exchange were mixed on the morning of Tuesday July 24; while copper prices were up by 0.4% at $6,154 per tonne, aluminium and tin prices were down by 0.4% and the rest were little changed.

Volume has, however, been above average – some 13,479 lots had traded across the complex as at 8.05am London time.

Gold and silver prices were a little weaker, with spot gold down by 0.25% at $1,221.64 per oz, silver off by 0.1%, platinum up by 0.1% and palladium unchanged – the latter put in a strong performance on Monday when prices rallied by 2%.

In China, base metals prices on the Shanghai Futures Exchange were mostly firmer – all the metals other than tin made gains. Aluminium prices led the way with a 1.25% rally, followed by a 1% gain in copper, a 0.6% gain in lead and a 0.3% rise in zinc. Nickel was unchanged and tin dropped by 0.6%.

The most-active September copper contract was at 49,420 yuan ($7,250) per tonne.

Spot copper prices in Changjiang were up by 0.9% at 49,070-49,300 yuan per tonne and the LME/Shanghai copper arbitrage ratio was stronger at 8.03, up from 7.92 on Monday. This implies SHFE copper is strengthening relative to LME copper.

In other metals in China, the September iron ore contract on the Dalian Commodity Exchange was up by 0.2% at 474.50 yuan per tonne. On the SHFE, the October steel rebar contract was down by 0.3% and December gold and silver were both down by 0.1%.

In wider markets, spot Brent crude oil prices were up by 0.28% at $73.09 per barrel this morning. The yield on US 10-year treasuries was firmer at 2.9604% while the German 10-year bund yield was stronger at 0.4120%.

Asian equity markets were firmer on Tuesday: Nikkei (+0.51%), Hang Seng (+1.38%), CSI 300 (+1.59%), Kospi (0.48%) and the ASX200 (0.61%). This follows a mixed performance in western markets on Monday; in the United States, the Dow Jones closed down by 0.06% at 25,044.29 while in Europe the Euro Stoxx 50 closed up by 0.39% at 3,467.59.

Equities in Asia have been buoyed by China’s announcement of tax cuts, infrastructure spending and a $74 billion injection by the central bank into the banking system.

The dollar index at 94.70 is consolidating after Friday’s weakness when it dropped from Thursday’s high at 95.66. Sterling and the Australian dollar are also consolidating at 1.3103 and 0.7376 respectively; the euro is weaker (1.1688), the yen is firmer (111.15) and so too is the Australian dollar (0.7417).

The yuan gapped lower to 6.8091; the other emerging market currencies we follow are quite mixed. While the he peso and the real are strengthening, the ringgit and the rupiah are weaker and the rand is consolidating.

On the economic agenda, data out already shows Japan’s flash manufacturing PMI dropped to 51.6 from 53 while its core CPI was up 0.4% after a 0.5% rise previously.

The French manufacturing PMI climbed to 53.1 from 52.5 but the French services PMI dropped to 55.3 from 55.9, while Germany’s manufacturing PMI rose to 57.3 from 55.9 and the German services PMI eased to 54.4 from 54.5.

Data out later includes EU PMIs, UK industrial order expectations and US manufacturing and services PMIs as well as the Richmond manufacturing index.

In recent days, base metals prices have been trading sideways, often within the previous day’s ranges, which suggests consolidation. This pause is often a precursor to a bigger move.

The trends are firmly to the downside but, given that China has started to intervene in markets, we would be on the lookout for buying coming into the base metals. So far today the goodwill from China’s move has lifted equities in Asia; will it flow into the metals too?

Underlying tails on the spot gold price chart suggest dip-buying was present on July 19 and 20 but there was little follow-through buying on Monday although some appears to be emerging this morning. We wait to see if more emerges.

Silver is following gold’s lead while platinum remains weak and palladium is rebounding.

London Metal Exchange, base metals prices, precious metals prices