Base metals rise as Chinese markets stabilise

Wednesday, July 29, 2015
Base metals indicated encouraging signs early on this morning after steady gains posted yesterday stemmed the recent rout in the metals market. Three month contracts traded on the LME were led by tin which was on track to post a fifth straight session of gains with three month rolling copper and aluminium forwards hoping to build on yesterday’s gains as confidence slowly starts to return to the market and investors take advantage of buying opportunities. Three month LME copper prices added as much as 4.0% over the past two sessions as prices attempted to recover back above $5,400/tonne after hitting a fresh year-to-date low on Monday. Three month tin prices managed to rally to a fresh three month high early this morning, trading towards $16,340/tonne early on.

It seems as if intervention from policymakers in China to utilise state funds in an effort to prop up the equity market is having the desired effect with mainland Chinese stock indices gaining just over one percent overnight. However, while the recent outflows may have abated (for now) markets are still a long way off the year-to-date peaks seen only six weeks ago, approximately 30% off. While we expect Beijing to offer additional support to the stock market any meaningful gains will likely be short lived as retail investors, having posted substantial margins in recent weeks, will look for any opportunity to cash out and limit any further losses. We are already seeing a reduced appetite for leverage and with brokers tightening lending criteria we could see a further correction in stocks as positions are unwound.

The ECB approved the reopening of the Athens Stock Exchange yesterday with further details on the exact timing and proposed trading restrictions still to be decided. Greek markets have remained closed for four weeks now as the indebted nation battles to stabilise its financial system and remain solvent. Concerns have been raised by eurozone officials that any rushed opening of the exchange would only worsen market liquidity as investors rush to pull out funds but with an already isolated Greek economy there is a real need to reopen markets and allow capital to flow freely once again.

All eyes will be on today’s FOMC rates decision and accompanying press statement for any change in wording that could offer further insight into the path an eventual US rates rise will take. Market participants expect the Federal Open Market Committee to keep rates on hold at its current range of 0-0.25% but close attention will be paid to any hints of a rates rise in September. Over in the UK, market participants are eagerly anticipating next week’s release of the Bank of England inflation report and base rate decision. Governor Mark Carney is taking the unusual step of releasing the central bank’s policy decision, meeting minutes and economic forecasts all at once and we have no doubt that among the onslaught of economic data and forecasts investors will have plenty of insight into the thought processes of policymakers as market participants anticipate a UK interest rates rise in the coming months.

LME tin prices extend gains

LMSNDS03 Comdty LME TIN 3 2015 07 29 07 44 09

Margin trading in China has dropped sharply throughout July

CHMDBMT Index China Margin Trad 2015 07 29 07 52 53

Events for today

0700

DE

Aug

GfK Consumer Confidence

1500

US

Jun

Pending Home Sales

1530

US

w/e

EIA Energy Stocks

1900

US

Jul

FOMC Rate Decision

 

 

Topics: Copper, US Fed, ECB, BoE, LME, Tin
More from: Kash Kamal