Rallies continue, helped by weaker dollar

Jan 5, 2017 - 8:09 AM GMT
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This morning January 5, the base metals prices are up an average of 0.4%, zinc prices are the only ones in negative territory, down 0.2%, while the rest are up between 0.1% for tin and 0.8% for nickel – three-month copper prices are up 0.6% at $5,670 per tonne. Volume has been strong with 10,902 lots traded as of 06:69 GMT. Precious metals are stronger too with average gains this morning of 1.3%, led by a 1.9% gain in spot platinum prices to $958.50 per oz, while the rest are up 1.1% with spot gold prices at $1,178.80 per oz.

Today’s strength follows on from yesterday’s strength where the base metals climbed an average of 2.2% led by a 3.6% gain in zinc prices, a 3.3% rise in lead prices and a 2.8% rise in copper prices to $5,635 per tonne. The markets were buoyed by strong economic data and an apparent return of buying interest following December’s profit-taking ahead of year-end.

In Shanghai, the base metals are up an average of 1.1% this morning December 5, led by gains in lead and zinc  that average 2.2%, copper prices are up 1.2% at Rmb 45,890 per tonne, nickel prices are up 0.7%, tin prices are up 0.5%, while aluminium prices are bucking the trend with a 0.2% decline. In Changjiang, spot copper is up 1.3% at Rmb 45,480-45,680 per tonne, the spread is at an equivalent of $30 per tonne contango, while the LME/Shanghai copper arb ratio has slipped to 8.1, no doubt pulled in by today’s stronger yuan.

In other metals in China, May iron ore prices are up 2.1% on the Dalian Commodity Exchange, on SHFE steel rebar prices are up 2.7%, silver prices are up 0.5%, while gold prices are off 0.4%. In international markets, spot Brent crude oil prices are little changed at $56.40 per barrel.

Equities remain positive, yesterday the Euro Stoxx 50 closed up 0.1%, the Dow closed up 0.3% at 19,942, so is once again closing-in on the 20,000 level. The FOMC meeting minutes out last night suggested economic uncertainty and concern about the strong dollar and its effect on the US economy – which led to the Minutes having a slightly dovish tone. This has weighed on the dollar, but been positive for most equities. The Nikkei is one of the exceptions as the stronger yen has weighed on the Nikkei, which is off 0.4%, the Hang Seng is up 1.5%, the ASX 200 is up 0.3%, while the Kospi is off 0.2% and the CSI 300 is little changed.

In FX, the dollar index is weaker at 101.94, the high recently was 103.82, while the recent low was 101.53. As the dollar has turned lower other currencies are firmer with the yen at 115.93, the euro at 1.0554, sterling at 1.2345 and the aussie at 0.7310. Perhaps the biggest reaction has been the rebound in the yuan to 6.8115, from around the 6.9500 level in recent days and a corresponding firmer tone in most emerging market currencies, the peso being the exception.

On the economic front, data out late yesterday and early this morning showed US total vehicle sales came in at 18.4 million units in December, the highest since 2005, and Japan’s monetary base climbed 23.1%, after climbing 21.5% previously. This morning, China’s Caixin services PMI edged higher to 53.4, from 53.1. Data out later includes, EU retail PMI, UK services PMI, EU PPI, US Challenger job cuts, ADP non-farm employment change, initial jobless claims, US final services PMI, ISM non-manufacturing PMI and natural gas and crude oil inventories – see table below for more details.

The start of the year has seen buying across metals resume and the weaker dollar will add fuel to the rally so for now the markets seem unperturbed by the potential for market uncertainty as president-elect Donald Trump takes the helm. Given the good economic data we continue to remain mildly bullish for the industrial metals as demand looks set to improve, but we are wary that the metals may be running into a political-generated storm in the weeks ahead and there may well be some risk-off times later in the month. So for now we would run with the trend, but be prepared for set-backs.

The fact gold and bitcoin prices are rising suggests some shrewd safe-haven buying as an insurance against the potential for risk-off in the weeks.

 

 

Overnight Performance
GMT 06:59 +/- +/- % Lots
Cu 5670 34.5 0.6% 3680
Al 1696 8 0.5% 1695
Ni 10295 80 0.8% 2993
Zn 2626 -4.5 -0.2% 2324
Pb 2085 6 0.3% 182
Sn 21175 30 0.1% 28
  Average   0.4%       10,902
Gold 1178.79 12.69 1.1%  
Silver 16.66 0.185 1.1%  
Platinum 958.5 17.5 1.9%  
Palladium 745.2 8.2 1.1%  
  Average PM   1.3%  

 

SHFE Prices 06:58 GMT RMB Change % Change
Cu 45890 530 1.2%
AL  12580 -30 -0.2%
Zn 21465 490 2.3%
Pb 17825 360 2.1%
Ni 85420 630 0.7%
Sn 150980 810 0.5%
Average change (base metals) 0   1.1%
Rebar 2971 79 2.7%
Iron ore 550.5 11.5 2.1%
Au 268.95 -1 -0.4%
Ag 4135 22 0.5%

 

Economic Agenda
GMT Country Data Actual Expected Previous
Wed US  Total Vehicle Sales 18.4M 17.8M 17.9M
Wed Japan Monetary Base y/y 23.1% 22.3% 21.5%
Today          
1:45am China
Caixin Services PMI
53.4 53.3 53.1
 9:10am EU 
Retail PMI
    48.6
9:30am UK
Services PMI
  54.8 55.2
10:00am EU
PPI m/m
  0.2% 0.8%
12:30pm US 
Challenger Job Cuts y/y
    -13.0%
1:00pm UK
MPC Member Haldane Speaks
     
1:15pm US
ADP Non-Farm Employment Change
  171K 216K
1:30pm US
Unemployment Claims
  262K 265K
2:45pm US
Final Services PMI
  53.4 53.4
3:00pm US
ISM Non-Manufacturing PMI
  56.6 57.2
3:30pm US
Natural Gas Storage
  -97B -237B
4:00pm US
Crude Oil Inventories
  -1.8M 0.6M