MORNING VIEW: Crosswinds hit metals prices with trade optimism buffeted by poor manufacturing data

The outcome of the Group of 20 (G20) summit in Japan that was held on June 28-29, saw the United States and China agree to resume trade talks, which has boosted optimism for a trade deal.

This has given most non-haven markets a lift, this despite further weakness in manufacturing purchasing managers’ index (PMI) data.

  • China’s Caixin manufacturing PMI dropped to 49.4 from 50.2, Japan’s manufacturing PMI fell to 49.3 from 49.5
  • China’s CSI 300 index was up by 2.88% and Europe’s Euro Stoxx 50 was up by 1.11%
  • Haven demand has fallen with the spot gold price trading at $1,385.59 per oz, down from June 28’s high of $1,424.63 per oz

Base metals

The London Metal Exchange three-month base metals prices were broadly stronger this morning, up by an average of 0.4% as at 8.00am London time. Nickel was the exception with a drop of 0.9% to $12,560 per tonne. Tin and lead were up by 0.3% and copper and aluminium were by 0.9%.

In China, base metals prices on the Shanghai Futures Exchange were mixed; the August nickel contract led on the downside with a 2% fall, September tin was off by 0.9% and August aluminium was down by 0.6%, while the August lead contract was up by 1.4%, August zinc was unchanged and August copper was up by 0.8% at 47,370 yuan ($6,921) per tonne.

Spot copper prices in Changjiang were up by 0.6% at 47,170-47,290 yuan per tonne and the LME/Shanghai copper arbitrage ratio was weaker at 7.82, down from 7.91 at a similar time on June 28.

Precious metals
Gold and silver have reacted negatively to the resumption of US-China trade talks; spot gold prices at $1,385.59 per oz, are now down 3.7% from the recent peak at $1,438.80 from June 25. Silver prices are down by 0.5% at $15.205 per oz and the gold/silver ratio has dropped to 91 from June 28’s peak of 92.96.

Platinum and palladium are consolidating recent gains and were recently quoted unchanged at $833.40 per oz and $1,537.60 per oz respectively.

The December gold contract on the SHFE was down by 2.8%, while the December silver contract slid by 1.2%.

Wider markets
The spot Brent crude oil price remains well supported and was recently quoted at $66.61 per barrel, compared with $66.12 per barrel at a similar time on June 28.

The yield on benchmark US 10-year treasuries continues to hover above the 2% mark and was recently at 2.0281%, up from 2.0213% at a similar time on June 28. But the German 10-year bund yield still trades in negative territory and was last seen at -0.3254%.

Equities in Asia have been upbeat on Monday, with the ASX, Nikkei and the CSI 300 up by 0.44%, 2.13% and 2.88% respectively. The Hang Seng was closed.

Currencies
The dollar index is rebounding and was recently quoted at 96.52, this after a low last week of 95.84. The rebound has weighed on other major currencies: euro (1.1325), sterling (1.2660), the yen (108.30) and the Australian dollar (0.6998).

The yuan has strengthened and was recently quoted at 6.8438.

Key data

In addition to the data already mentioned, there has been further manufacturing PMI releases from Spain (47.9), Italy (48.4), France (51.9), Germany (45) and EU (47.6). Later there is PMI data out in the United Kingdom and US. In addition, there is unemployment data out in Germany, Italy and European Union. There is money supply data out of Europe and the UK, data on US construction spending and there is also an Organization of Petroleum Exporting Countries (OPEC) meeting.

Today’s key themes and views
Copper gapped higher on US-China trade optimism, but most of the other metals are already giving back earlier gains. The generally poor PMI data highlights that the trade dispute continues to put downward pressure on economic activity and that is diluting the optimism that a trade deal will eventually provide stimulus. Given a trade deal could still be a long way away, markets may well struggle on the upside.

With the strong gains in gold in June driven by tensions in the Middle East and general weakness in economic data, it is not surprising that optimism for a trade deal has prompted some profit-taking. Key now will be how the market handles this pullback. If it is short-lived then that will suggest investors are still nervous about the big economic and financial market pictures.

base metals
precious metals

macroeconomic data

William Adams

william.adams@fastmarkets.com

Published

William Adams

July 01, 2019

10:38 GMT

London