The markets, including metal markets, absorbed two nasty shocks in the past week.
Firstly, minutes of a recent meeting of the US central bank’s Federal Open Market Committee spoke of adjusting the flow of asset purchases downwards, possibly as early as this month, if there were evidence of sufficiently strong and sustained growth. Secondly, the flash (preliminary) purchasing managers’ index (PMI) for manufacturing in China (compiled by Markit Economics for the bank HSBC) fell below 50, suggesting a contraction. (The actual number was 49.6 in May, down from 50.4 in April.)
The damage was mitigated a few days later, when Joerg Asmussen, a member of the executive board of the European Central Bank promised that his institution would keep an expansive monetary policy as long as it was needed.
The markets are worried by the possibility that central banks might reduce the flow of money because many analysts believe that it is the surplus money that is not being invested in industrial, or other, projects that is keeping financial markets buoyant.
Recent data from China had also been pointing to slower growth, not to contraction.
There were also reports that changes in Chinese legislation would mean the end of financing deals that have been keeping around 500,000 tonnes of copper tied up as collateral for loans. This could clearly reduce China’s demand for copper imports at a time when demand is already falling due to reduced manufacturing activity.
Meanwhile, new orders for manufactured durable goods increased by 3.3% in April in the US, according to the US Census Bureau. This followed a 5.9% decline in March.
In the next few days, the markets will be concentrating on measures of US consumer confidence, with both the trade association the Conference Board, and the University of Michigan due to publish indicators.
The recession continued in the eurozone in May, albeit with a slower rate of decline. The flash PMI for manufacturing in the zone, compiled by market, stood at 47.8 in May, up from 46.7 in April. This was its best performance for three months.
And the business climate in Germany improved once again. The indicator compiled by the Ifo economic research institute rose to 105.7 in March, after falling to 104.4 in April.
On the London Metal Exchange, copper for delivery in three months was trading at around $7,300 per tonne earlier this week, barely changed from $7,297 a week earlier. Stocks of copper in warehouses approved by the exchange eased to 619,650 tonnes earlier this week from 628,025 tonnes a week earlier. Freeport McMoRan’s Grasberg mine in West Papua in Indonesia was likely to reopen soon, after a collapse in mid-May that killed some 28 miners.
Three month aluminium was holding at around $1,844 per tonne earlier this week, virtually unchanged from $1,846 a week earlier. LME stocks eased a little, falling to 5,213,050 tonnes earlier this week, from 5,231,125 tonnes a week earlier.
Three month aluminium alloy held at around $1,810 per tonne earlier this week, unchanged from a week earlier. LME stocks edged down to 70,300 tonnes earlier this week, from 70,800 tonnes a week earlier.
Three month nickel moved down to around $14,860 per tonne earlier this week, from $14,915 a week earlier. LME stocks rose to 197,370 tonnes earlier this week, from 178,758 tonnes a week earlier.
Three month zinc was trading at around $1,857 per tonne earlier this week, up from $1,838 a week earlier. LME stocks stood at 1,095,600 tonnes earlier this week, down from 1,114,175 tonnes a week earlier.
Three month lead stood at around $2,099 per tonne earlier this week, up from $2,009 a week earlier. LME stocks held at 230,725 tonnes earlier this week, down from 239,375 tonnes a week earlier.
Three month tin was holding at around $21,155 per tonne earlier this week, up from $21,025 a week earlier. LME stocks eased to 13,895 tonnes earlier this week from 14,050 tonnes a week earlier.
Steel billet’s three month position fell to around $140 per tonne earlier this week, from $160 a week earlier. LME stocks remained at 76,700 tonnes earlier this week unchanged from a week earlier.
Precious metals remained under pressure from the looming change in US monetary policy. Spot gold bullion was trading at around $1,387.30 per ounce earlier this week, up slightly from $1,380.20 a week earlier, while spot silver eased to $22.39 per ounce from $22.59 a week earlier. Spot platinum edged down to $1,467 per ounce earlier this week, from $1,469 a week earlier.