Written Commentary
BASE METALS
Copper: Copper prices on the LME rose 0.1% to $14,453 before the release of US inflation data as factory activity data from China showed growth, although trading remained subdued ahead of a week-long holiday in the country. The official PMI gauge rose to 50.1 from 49.8 in August, after two straight months of contraction, per the National Bureau of Statistics. That reading matched the median forecast of 50.1 in a Reuters poll. China’s fiscal spending efforts appear to be helping, though the real test is whether domestic consumption can return strongly. Meanwhile, the private survey by RatingDog, showed manufacturing PMI rose to a five-month high of 52.1. China’s leaders are stepping up efforts to support growth after signs of further economic slowdown, pledging to accelerate fiscal spending and introduce timely policies as they target 4.5%–5% full-year growth. However, heavy reliance on exports and industrial production faces risks from geopolitical uncertainty and rising trade frictions.
Meanwhile, a 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.
Zinc: Zinc shed 0.8% to $3,840.
Aluminum: Aluminum slipped 0.2% to $3,208.
Tin: Tin added 0.2% to $54,530.
Lead: Lead lost 0.5% to $1,889.
Nickel: Nickel climbed 0.6% to $16,050.
PRECIOUS METALS
Gold: December gold contracts moved sharply higher in the wake of August’s PCE report, which outweighed an overnight rise in oil prices. August’s data offers some near-term relief to the Fed, but the underlying demand data was hawkish. Core PCE rose 0.2% m/m and 3.0% y/y, while headline PCE increased 0.3% m/m and 3.4% y/y. The softer core outcome should ease immediate concern that inflation is reaccelerating and gives policymakers room to await additional evidence. However, consumer spending remained notably firm, rising 0.9% m/m and real PCE gained 0.6%, following a weak July. The accompanying GDP revisions further strengthen the case for policy patience. Q2 real GDP was revised up to 2.2% annualized, while real final sales to private domestic purchasers were revised to a robust 4.6%. The latter measure, capturing consumer spending and private fixed investment, suggests underlying domestic demand was considerably stronger than the headline GDP figure alone implies. For yields, the release supports a modest near-term bull-steepening at the front end, but limits the case for a sustained rally across the curve. Elsewhere, NY Fed President Williams said there was “no need for urgency” in raising rates. Looking ahead, nonfarm payrolls, ISM manufacturing PMI, and several Fed speakers will continue to shape market expectations of near-term Fed policy, though it is unlikely that the data will be strong enough to recover Tuesday’s pricing of a 70% probability of an October hike (now at 35%). For now, the data and relief in near-term Fed tightening expectations are bullish for gold.
Silver: December contracts are up 0.50% to $61.43.
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