Market and product

The base metals continue to trade in a mixed fashion between consolidating below resistance for the likes of zinc, nickel and aluminium, while copper and lead are drifting lower and tin has pushed higher. The precious metals as a group are stronger, with the PGMs extending higher on the possibility there may be production disruptions should Eskom, the power utility, strike, while gold and silver prices hold up in high ground.

This morning, base metals are mixed, nickel is off 0.9 percent, aluminium is off 0.1 percent, while the rest are up between 0.1 and 0.2 percent. Volume has been light with 3,535 lots traded. Precious metals are stronger with gold prices up 0.8 percent at $1,351.50, silver is up 1.1 percent, platinum is up 1.6 percent and palladium is up 4.8 percent.

In Shanghai, the base metals are for the most part mixed with gains of 0.4 percent for aluminium and zinc is up 0.2 percent, while copper, lead and nickel are off between 0.2 and 0.4 percent, with tin the strong one with a 2.6 gain. Copper is last at Rmb 37,360. Spot copper in Changjiang is off 0.3 percent at Rmb 37,300-37,400, meaning the spread is either side of level, while the LME/Shanghai copper arb ratio is at 7.8, which may well mean the arb window is open for some traders.

In other metals in China, iron ore prices are down 2.5 percent, steel rebar is off 0.7 percent, while gold and silver prices are up 0.8 and 1.3 percent respectively.

Equities were generally stronger yesterday with the Euro Stoxx 50 up 1.6 percent, while the Dow closed little changed. Asia this morning is slightly weaker with most of the indices we follow off between 0.1 and 0.3 percent.

In FX, the dollar latest attempt to rebound seems to be stalling with the dollar index last at 95.84, the euro is last at 1.1144, sterling is weak at 1.3040, the yen is strong at 101.41, as is the aussie at 0.7691. In emerging market currencies, the yuan is flat-to-stronger at 6.6525, while most of the others are showing strength, suggesting the risk-on barometer is strong.

The economic calendar is fairly busy with better Japanese data, while France’s industrial production has disappointed. US data includes jobs opening, crude oil inventories and the Federal budget balance – see table below for more details.

Generally the base metals are holding up well, especially considering we are in the middle of the summer slowdown and sentiment for the metals still remains far from bullish. With equities also strong it suggests risk-on with investors seeking/chasing yields, which in this climate means taking more risk. With further important Chinese economic data out tomorrow (FDI, M2 and new loans) and Friday (IP, FAI and retail sales) we wait to see if the trend in slightly better data continues. If it does then that could further boost metals prices. We remain more bullish on China’s outlook than most, it would seem.

The PGMs are leading the precious metals camp, with the possibility of direct or indirect supply disruptions likely to be fuelling the stronger prices, while gold and silver prices are holding up in high ground suggesting some risk-diversification continues.