Good Chinese data bodes well for the metals

• A host of better Chinese data bodes well for industrial metals, but they are being slow to react

Base metals closed down an average of 0.2 percent yesterday, zinc and lead were down around 1.2 percent the rest were up between 0.1 percent for copper and 0.6 percent for nickel. Precious metals saw a 3.3 percent gain in palladium, while the rest were down between 0.4 percent for silver and around one percent for platinum and gold prices.

This morning the base metals are mixed with nickel down 1.1 percent the rest are little changed with copper off 0.4 percent at $4,824. Volume has been low at 4,377 lots.

Precious metals are up an average of 0.3 percent, palladium is leading the way with a 0.6 percent gain, while gold prices are up 0.3 percent at $1,231.20.

In Shanghai, the base metals are down an average of 0.4 percent, copper is little changed at Rmb 36,970, the rest are lower, ranged between losses of 0.2 percent for aluminium and nickel to 0.8 percent for tin. Spot copper in Changjiang is up 0.1 percent at Rmb 36,850-36,950, the spread is flat, while the LME/Shanghai copper arb window is ajar with the ratio at 7.67.

In other metals in China,  iron ore prices dropped 1.8 percent to $59.38, steel rebar is down 1.4 percent, gold prices are down 0.6 percent and silver is holding up relatively well with a 0.1 percent drift. In oil markets, Brent crude is up 0.5 percent at $43.95 as the market braces itself for the OPEC Doha meeting this weekend.

Equities remained buoyant yesterday with the Euro Stoxx 50 up 0.7 percent and the Dow was up 0.1 percent, but despite good Chinese data, Asia is mixed this morning with the Nikkei off 0.6 percent, the Hang Seng is off 0.1 percent, the CSI 300 is little changed, the ASX 200 is up 0.8 percent and the Kospi is off 0.1 percent.

In FX – the dollar’s rebound has halted, the dollar index is last at 94.89, the euro is weak at 1.1266, sterling is flat at 1.4170 and the aussie continues to strengthen, last at 0.7726. Emerging market currencies are for the most part consolidating, the real and rand seem to be the two that are looking well placed to extend gains.

The economic agenda is busy today, Chinese data has generally been strong, GDP came in as expected at 6.7 percent, but industrial production, fixed asset investment, new loans and retail sales all gained more than expected. This we think bodes well for better metal demand, which has been the missing ingredient in recent quarters. Better demand combined with the supply restraint should be bullish for the metals, especially if it leads to consumer restocking. Data out later includes US Empire State manufacturing, industrial production, capacity utilisation, University of Michigan consumer sentiment and inflation expectations and TIC long term purchases. In addition, G20 and IMF meetings start today – see table below for more details.

The base metals are pausing after a strong rebound this week from recent pullbacks. Given the better Chinese data we think the metals will find renewed energy to extend gains, especially as we are now in the seasonally strong second quarter. As mentioned above, if consumers feel more optimistic then after a long period of destocking there may well be room for restocking and that can be a bullish phenomenon for commodities.

Most of the precious metals are consolidating and the firmer dollar of late may be prompting that. If China is turning a corner then industrial precious metals could well benefit in line with the base metals. This may see some relative strength compared with gold prices, but if investors start to like commodities more, then a rising tide could lift all commodities if commodity baskets are bought into.  

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Source: Bullion Desk News