Morning Market Wrap
Overnight Markets:
Last night marked the fourth consecutive day of gains in the US cash markets:
- SPX: +0.39%
- Dow: +0.11%
- Nas: +0.56%
Although the uptrend seemed less vigorous, the markets were green nonetheless. Yields dipped in response to the US drop in GDP 2nd Estimate, providing more evidence of the "economy showing signs of slowing" camp. The GDP came in at 2.1% versus expectations of 2.4%. Despite the benchmark 10-year yields dropping initially, they gradually rose to close at 4.112%.
Metals and Macro:
Precious metals, namely gold and silver, also advanced, but like 10-year yields, they retreated from their highs. Silver remained relatively unchanged since the Australian session close, while gold gained around $6 USD to close at $1942 USD/oz. Besides the economic data mentioned above, there were no other notable macro drivers from last night.
Base Metals:
Given the slightly weakening USD, one might have expected more substantial movement from base metals lately. However, Cu is just now starting to break free from recent highs, having closed +0.23%. Ni was mid-range, closing -0.23%, while Aluminum (Al) showed strength, closing +1.50%. Al had been the weakest of the three main base metals, so it's encouraging to see it catching up to the highs from two weeks ago. Both SHFE and LME Tin had robust sessions, with LME Tin up +0.43% and SHFE Tin up +1.24%. While they're making progress towards the top of recent ranges, they still have some work to do to reclaim their previous highs.
Energy and Battery Metals:
In energy markets, the active Nov Coal contract was down -2.2% during the session, in contrast to the positive Oct contract for Natty Gas, which gained +5%. Both commodities are still trading within recent ranges, so it remains to be seen which will influence the other, either on the upside or downside. Oil markets exhibited some buoyancy yesterday due to a hurricane off the coast of Florida, which resulted in some operations in the region being shut down by Chevron. Despite this, oil prices showed little change, remaining flat compared to Australian session close levels. The narrative of economic slowdown isn't ideal for oil, as it suggests reduced demand due to decreased production of goods and services. However, too much slowdown could lead to easing government and central bank policies to stimulate growth, which would favor oil. On the back of poor GDP numbers last night, oil took a hit, indicating its responsiveness to economic indicators. Iron ore once again demonstrated dominance amid concerns about China, possibly signaling further stimulus measures from China. Iron ore closed the evening session +2% at 836CNY (or 114USD/t). Many brokers have mid-term pricing around 90USD, so if these prices persist, updates to pricing models, target prices, and ratings could be on the horizon, likely indicating upward revisions. This stands in contrast to the scenario with Lithium stocks, where brokers' short- to mid-term pricing models are significantly higher than current prices. Lithium Carbonate futures remained below 200CNY/kg, closing at 199CNY/t. We should be vigilant around the 195 level. GZ futures touched their lowest point two days ago, so both Wuxi and GZ warrant attention for more downside potential. Uranium prices continue to rise, with the mid-point pricing at $59.35/lb. Although there seems to be strong upward momentum, Australian names appear to have persistent sellers. The $60 milestone is within sight, and the highs of 2020 at $64 are also approaching, prompting careful monitoring of dips in these names, including BOE and PDN, which are near-term producers.
Local:
Australian futures are up +4pts this morning, not quite matching the performance of the US markets. Yesterday saw Lithium names pulling back from the relief rally, with US names following suit last night. This is in stark contrast to the inverse trading between Lithium and Uranium names of late. Given the upward push in Uranium prices and the downward movement in Lithium prices, the breakdown of their correlation makes sense.
Data (Sydney Time):
China is releasing Manufacturing PMI figures today at 11:30am. Given China's manufacturing-based economy, these figures hold significant weight. The prevailing "China slowdown" narrative suggests that downside data might be more impactful than positive data. The previous reading was 49.3, and expectations are for a slight beat at 49.4. A figure below 48.9 would be significant and could move the markets. On the upper end, a reading above 50 would be well-received, considering the slowdown narrative. This data carries substantial significance today, so be prepared for its impact at 11:30am. Additionally, Australian capex numbers are due at the same time. While the China numbers might carry more weight, these figures should also be on your radar. At 7pm, Euro unemployment data will be released. Notably, significant US figures are scheduled for tonight, including PCE numbers at 10:30pm. Market participants may be hoping for weaker numbers here to align with the weaker economic data that the Fed desires. Keep this in mind as it becomes tonight's main risk event. US Non-Farm Payrolls and unemployment figures are also due on Friday, simmering in the background.
That's all for today. Have a great day!