METALS MORNING VIEW 28/02: Metals prices consolidate as poor Chinese PMI data weighs on sentiment

A drop in China’s manufacturing purchasing managers’ index (PMI) to 49.2 in February, from 49.5 in January, has set a weaker tone across markets with base metals traded on the London Metal Exchange mostly lower and down by an average of 0.3% in the morning of Thursday February 28.

Copper and zinc prices led on the downside with losses of 0.7%, with copper recently quoted at $6,473 per tonne after Wednesday’s close at $6,520.50 per tonne.

Volume across the LME base metals complex has been average with 7,187 lots traded as at 7.03am London time on Wednesday, compared with an average of 7,117 lots traded at a similar time each day last week.

Spot precious metals prices were slightly firmer this morning, up by an average of 0.1%; gold was recently at $1,321.73 per oz, up by 0.1% from Wednesday’s close of $1,320.95 per oz.

In China, base metals prices on the Shanghai Futures Exchange were mixed. Nickel’s May contract and lead’s April contracts were showing strength with gains of 1.1% and 1.4% respectively. April aluminium and April zinc were down by 0.2% and 0.3% respectively, while May tin was off by 0.1% and April copper was unchanged at 50,130 yuan ($7,501) per tonne, compared with 50,130 yuan per tonne at Wednesday’s close.

The spot copper price in Changjiang was up by 0.2% at 49,800-50,030 yuan per tonne this morning, compared with 49,690-49,920 yuan per tonne on Wednesday, while the London/Shanghai copper arbitrage ratio was weaker at 7.75, after being at 7.77 at the start of the week.

In other metals in China, the May iron ore contract on the Dalian Commodity Exchange was up by 2% at 609.50 yuan per tonne, compared with 597.5 yuan per tonne at the close on Wednesday. On the SHFE, the May steel rebar contract was up by 0.5% at 3,746 yuan per tonne, compared with 3,727 yuan per tonne at Wednesday’s close.

In wider markets, the spot Brent crude oil price was down by 0.45% at 65.96 per barrel, compared with $66.28 per barrel from Wednesday’s close.

The yield on US 10-year treasuries was recently quoted at 2.6593%, compared to 2.6654% at a similar time on Monday. The yields on the US 2-year and 5-year treasuries remain inverted and were recently quoted at 2.4809% and 2.4568% respectively. The German 10-year bund yield was at 0.1400%, compared with 0.1000% on Monday.

Asian equity markets were mainly weaker on Thursday: Nikkei (-0.79%), Hang Seng (-0.44%), the CSI 300 (-0.25%) and the Kospi (-1.76%), the exception was the ASX 200, which was up +0.3%.

This follows a weaker performance in western markets on Wednesday; in the United States, the Dow Jones Industrial Average closed down by 0.28% at 26,985.16, and in Europe, the Euro Stoxx 50 closed down by 0.20% at 3,282.77.

The dollar index is consolidating near recent lows and was recently quoted at 96.04. The consolidation in the dollar has generally led to consolidation in the other major currencies we follow: the euro (1.1388), the yen (110.75) and the Australian dollar (0.7143), although sterling is firmer at 1.3290 as a hard Brexit is looking less likely.

The yuan continues to strengthen and was recently quoted at 6.6840, compared with 6.7111 at last Friday’s close. Most of the other emerging market currencies we follow are within recent ranges.

Of the economic data due on Thursday, the market will have taken note of Chinese PMI data and is likely to focus on a host of European pricing data, including import prices in Germany and CPI numbers in Germany, France, Spain and Italy, as well as French GDP data. US data includes advanced GDP, initial jobless claims, Chicago PMI and natural gas storage. In addition, Federal Open Market Committee member Richard Clarida is speaking.

The tone across the base metals is generally bullish, with lead and nickel taking over the lead from copper and tin, which are now consolidating. Zinc and aluminium have been working higher and are also consolidating this morning. Sentiment seems to have improved on the back of optimism on trade, but today’s Chinese PMI and concerns that talks have not gone well between US President Donald Trump and North Korea’s Kim Jong-un are acting as a headwind.

The stronger tone in gold and silver have paused because the outlook for the global economy may be about to improve if a trade deal is nearing. Palladium prices are consolidating recent gains, while platinum prices having been rallying strongly and at $868 per oz are the previous peak at $878 per oz from November last year.

LME, SHFE base metals prices
Precious metals prices

Economic calendar

William Adams

william.adams@fastmarkets.com

Published

William Adams

February 28, 2019

09:47 GMT

London