METALS MORNING VIEW - Metals consolidate after disappointing PMI data

London 03/05/2016 - After a strong performance on Friday that saw average gains of 1.5 percent across the base metals, this morning they are down an average of 0.6 percent, as they consolidate lower on the back of the disappointing Chinese PMI data. The Caixin manufacturing PMI fell to 49.4 after 49.7 previously. The precious metals pushed higher on Friday and again yesterday, with gold prices reaching a high of $1,303.30, driven by fresh buying interest, as seen by the 20 tonne increase in gold ETFs and also by the weaker dollar that has seen the dollar index drop to 92.43. This morning precious metals are for the most part consolidating with gold prices at $1,289.80, while silver is off 1.6 percent at $17.52 and the PGMs are just off recent highs.

In Shanghai, the base metals are up an average of 0.9 percent, led by a 2.3 percent rise in nickel prices, aluminium is up 1.2 percent and tin is up 0.9 percent. Copper is little changed at Rmb 37,570, spot copper in Changjiang is up 0.5 percent at Rmb 37,500-37,700, the spread is in an equivalent of $20 backwardation, but the LME/Shanghai copper arb window is lower at 7.55, which indicates the arb window is closed.

In other metals in China, iron ore prices were last around $65.20, steel rebar prices are down 4.3 percent, gold prices are up two percent, silver prices are up 0.1 percent and in international markets Brent crude prices are last at $46.05.

Equities – the Euro Stoxx 50 closed up 0.1 percent, the Dow closed up 0.7 percent and Asia is mixed with Hang Seng off 1.2 percent, Japan is closed until Friday for holidays, the CSI 300 is up 1.7 percent, the ASX 200 is up two percent and the Kospi is up 0.4 percent.

In FX – the dollar index is the lowest it has been since January 2015, the euro is strong at 1.1555, as are sterling at 1.4711 and the yen at 105.80, while the aussie is at 0.7580. In emerging market (EM) currencies, the yuan is flat at 6.4800, the rouble is firmer at 64.60 as are most of the other EM currencies we follow. The stronger tone suggests markets are in a risk-on mode.

On the economic agenda, as well as China's Caixin PMI, there is UK manufacturing PMI, EU PPI, US economic optimism and total vehicle sales, plus FOMC member Loretta Mester is speaking – see table below for more details.

Most of the metals are consolidating below recent highs, with aluminium and nickel the two metals that have recently set fresh highs, while the rest have yet to push up through their March highs, or in the case of zinc the highs seen earlier in April. With the LME closed yesterday, it will be interesting to see if the disappointing Chinese PMI data prompts more of a correction in base metals prices. If not, then the up trends that have been underway all year will look less and less like counter trend moves and more like bull markets. The weaker dollar is also providing a strong tailwind.

The precious metals are moving from strength to strength, the weaker dollar will be helping, but it does look as though investors are getting more confident in the overall rally/bull market.