MORNING VIEW: Metals prices mainly upbeat, boosted by some stronger Chinese data

Broader markets are generally upbeat this morning, Monday December 16, helped by last week’s partial United States-China trade deal and some positive economic data out of China.

But the base metals are mixed and gold prices are up, which suggests there is still some concern about the terms of the trade deal.

  • Chinese industrial production rose 6.2% in November, up from 4.7% previously while retail sales climbed by 8%, compared with 7.2% previously.
  • Flash purchasing managers’ index (PMI) data out later should provide further insight into the global economy.

Base metals
Three-month base metals prices on the London Metal Exchange were split into two camps with nickel and lead weaker, down by 0.6% and 0.4% respectively, while the rest were up between 0.2% and 0.4%, with copper up by 0.3% at $6,161 per tonne.

Trading volume has been average with 5,788 lots traded as at 6.56am London time.

In China, the most-traded base metals contracts on the Shanghai Futures Exchange were also mixed, with February lead down by 1.1% and February zinc off by 0.1%, while February nickel led on the upside with a 0.7% gain. February aluminium and May tin were up by 0.2% and 0.3% respectively, with February copper little changed at 49,060 yuan ($7,035) per tonne, up by just 20 yuan per tonne from Friday’s close.

The spot copper price in Changjiang was down by 0.5% at 48,550-48,830 yuan per tonne – the fact this spot price is down while the futures is up, highlights that the futures price has recovered since the physical price was set.

The LME/Shanghai copper arbitrage ratio was at 7.93, unchanged from a similar time on Friday morning.

Precious metals
The precious metals rallied on Friday because there was still some uncertainty as to whether the trade deal had been signed and what the details were, and prices remain upbeat this morning with spot gold recently quoted at $1,477.55 per oz, which is up by 0.1% from Friday’s close. Silver prices are also firmer with a 0.8% gain at $17.06 per oz, as are platinum and palladium with gains of 0.8% and 1.4% respectively.

Wider markets
The spot Brent crude oil price is pushing higher, it was recently up by 0.22% at $65.06 per barrel, compared with Friday’s close.

The yield on benchmark US 10-year treasuries has weakened too, which also suggests some haven interest. It was recently quoted at 1.8386% compared with around 1.9049% at a similar time on Friday. The German 10-year bund yield was also weaker and was recently quoted at -0.2900%, compared with -0.2300% at a similar time on Friday.

Asian equities were mixed: the Nikkei (-0.29%), the Hang Seng (-0.4%), the Kospi (-0.1%), the ASX 200 (+1.63%) and China’s CSI 300 (+0.49%). The strong gains in Australia partially reflecting how a new trade deal should be good for commodities.

This follows a mixed performance in Western markets on Friday, where in the US, the Dow Jones Industrial Average closed little changes, up by 0.01% at 28,135.38; in Europe, the Euro Stoxx50 closed up by 0.67% at 3,731.07.

Currencies
The dollar index broke lower on December 15 and is consolidating this morning - it was recently quoted at 97.02, compared with December 15’s low of 96.60.

Sterling is also consolidating after recent gains and was recently quoted at 1.3376, as are the euro (1.1141) and the Australian dollar (0.6878), while the yen (109.46) is weaker.

The Chinese yuan (7.00240 is also giving back some of Friday’s gains when it reached a multi-month high of 6.9588.

Key data
Economic data out already shows a Japan’s manufacturing PMI eased to 48.8, from 48.9, and China’s fixed asset investment rose by 5.2%, which was unchanged from the previous readings, as was China’s unemployment rate of 5.1%. China industrial production and retail sales were stronger, as highlighted above.

Data out later is focused on flash manufacturing and services PMI data out across Europe and the US, with other US data including: Empire State manufacturing index, National Association of Home Builders (NAHB) housing market index and Treasury International Capital (TIC) data on long-term purchases.

In addition, the Bank of England will publish the bank stress test results, the financial stability report, Financial Policy Committee meeting minutes and statement.

Today’s key themes and views
Given some positive developments on US-China trade and more certainty over Brexit, businesses may feel more confident to invest more and in turn that could lead to some restocking along supply chains, which should be bullish for metals. But, with this happening just before the holiday season the market reaction to these developments may be delayed until the New Year.

The fact gold prices are stronger and treasury yields are weaker, despite these developments, is noteworthy - perhaps markets are nervous about the details of the trade deal?

base metals
precious metals

macroeconomic data

William Adams

william.adams@fastmarkets.com

Published

William Adams

December 16, 2019

09:13 GMT

London