Written Commentary
BASE METALS
Copper: Copper prices on the LME rose 0.2% to $14,447 as the potential workers strike at BHP’s Escondida mine in Chile, the world’s largest copper mine, has reinforced supply worries. The potential strike comes amid suspended mining operations last week after a worker was killed in an accident. Meanwhile, two unions at Antofagasta’s Centinela copper mine in Chile rejected a collective contract offer on Monday, paving the way for a strike per Reuters. The market is awaiting manufacturing PMI data from China and a host of US data this week for further demand signals and clues on the monetary policy path in the US. Copper restocking in China, ahead of the country’s week-long National Day holiday, has largely been completed, which will likely reduce the supportive bid out of China this week.
Recent data from China showed that industrial profit growth slowed in August despite strength in technology manufacturing. Weak domestic demand outweighed strength in the domestic AI boom in China, firms were unable to maintain pricing power due to weak domestic demand, which lead to excess capacity in multiple sectors. This dynamic leaves Chinese firms more reliant on foreign demand, risking reliance on exports, making it susceptible to further demand risks. Household income and consumption data will play a greater role in indicating potential industrial growth and demand for copper in the Chinese markets.
LME warehouse stocks fell by 875 tons to 251,350 tons, though roughly half of that figure is actually available to the market, indiciating tight supply. Meanwhile, COMEX stocks have risen to over 700,000 tons for the first time
Zinc: Zinc gained 0.5% to $3,870.
Aluminum: Aluminum fell 0.6% to $3,231.
Tin: Tin added 0.4% to $54,025.
Lead: Lead edged up 0.2% to $1,906.
Nickel: Nickel shed 0.7% to $16,065.
PRECIOUS METALS
Gold: December gold contracts moved modestly higher overnight as a drop in oil prices and Treasury yields proved supportive. Still, the outlook for gold remains under pressure as markets have significantly repriced Fed expectations to expect more rate hikes, which has fueled a broad-based dollar rally. Last week’s strong PMI data has reflected economic strength and further indications of growth are likely to validate rate-hike expectations and push yields higher, leaving today’s JOLTS data as the central catalyst to price direction. A solid report will reinforce expectations of tighter policy in October. This comes ahead of this week’s August PCE, nonfarm payrolls, ISM manufacturing PMI, and several Fed speakers. Markets are assigning a 70% probability of an October hike, up from 66% to start the week and are priced for 52 bps of hike by January. The repricing reflects both strong US activity and a more persistent energy-driven inflation concern. This week’s August PCE inflation report, September nonfarm payrolls, ISM manufacturing PMI, and several Fed speakers will play a large role in validating or rejecting market expectations of an October hike.
Silver: December contracts are down 0.80% to $61.24.
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