Good morning,
Friday’s mood contrasts starkly with yday’s open. Risk coming under pressure with tonight’s triple witching options expiry seeing some question whether that will be prelude for US stock market correction. And ahead of weekend given all the increasing xenophobic and war rhetoric it should come as little surprise that so many remain sidelined.
We have been going through a bout of risk reduction so that also makes it less likely we can immediately recover too significantly. China remains a passive buyer on dips rather than chase any strength. Today’s overnight session turnover particularly light across the major metals. Lead and nickel the exceptions. So we continue to fight amid this bout of consolidation with HFTs contributing to these sharp moves as they load the prices and provide questionable liquidity.
Half year end will no doubt see interest pick up around that middle of next week. Later today we have US PMI data (14:45hrs BST). This likely to determine how the dollar ends the week amid all that rates discourse. Indeed, softer US data seeing a pickup in narrative around the potential for a September cut.
See how the BCOM energies subindex has powered last fortnight. Energies now up more ytd than the industrial metals
Although industrial metals underperformance on ratio basis versus the energies stalling into down trend thus far.
Vols have been so under pressure. That symptomatic of expectations that we return to a range trading environment. That in itself becomes a target in this writer’s opinion and can fuel the next real move. See a Bloomberg rolling chart of the 2nd month at the monies. Copper on LME in blue down 9% since its 20th May peak.
Price performance at cob 20th June 2024:
Ali
- Ali comes off overnight amid light turnover.
- According to Marex position estimates long liquidation continues on LME ali where fast money continues to establish its short positions and medium money liquidates its length.
- China imported bauxite port inventory seeing another week’s build, up to 23.25 million tonnes from the low on 7th June at 22.3 million tonnes.
- Both onshore alumina operating rate and electrolytic aluminum operating rate all seeing further pick up especially for the alumina units.
- Only Shanghai daily on warrant stocks seeing stock withdraw today whilst all the rest on the like of LME on warrant stocks and Shanghai weekly deliverable stocks seeing small build. COMEX ali stock instead remained flatlining.
- Shanghai July Aug spread settled at -60 this morning, easing from the high on 18th June at -25.
- Plenty of gamma to trade around the $2500 strike and open interest out to Dec 2024. Aggregate of 11.7k lots across the front 3 months.
- And looking at a volume profile since the 29th May peak of $2799 and that gamma reflected in the even spread of business since then. Although can make a case for saying biggest bars now picking up below $2500.
- Weekly support into $2454 and the 50% retrace taking move from the £2109 low in mid December to the $2799 peak.
- Resistance into $2535 and then the 8 week ma at $2576 and into $2600.
Copper
- Copper has been under pressure since the Asian market kicked off overnight. Although its turnover remains light and running down 15% compared to 20d average. A $180 intraday range traded which has achieved its 4d and 1Y ATR.
- Market is in consolidation phase having held the 50% retracement of the year to date range AT $9616. Vols having collapsed with July comex 50 delta options having declined from a settlement peak of 38.01% on the 20th May to 22.77% at cob 17th June. That testament to the view of many that we are going into a period of chop since the market has been cutting its positioning.
- See the monthly China refined copper net imports chart attached to illustrate a further decline owing to the jump of the refined copper exports in May, increased to 73.9kt from the low previous month at 24.6kt. This is not a positive factor to the prices amid the signs of weakening consumption.
- But China social inventory has started to see stock draws over last 2-3 weeks from the peak on 3rd June at 316.kt to 275.8kt as of yday. Shanghai bonded inventory instead seeing minimal stock builds.
- China liquidity index has been under pressure of late which is not supportive to copper prices owing to the narrowing liquidity environment.
- Offshore yuan weakness or the strength of dollar weighing on the whole complex – see our currency index registered a negative reading.
- A fast money short covering prog has helped the price hold and bounce off this week’s low. But that shows as having stalled whilst the medium term money continues to liquidate its length.
- Shanghai aggregate open interest up 2.6k lots or 0.5% after 5 consec declines.
- Only LME on warrant seeing stock builds whilst the rest seeing further stock withdrawals.
- Shanghai July Aug spread settled at -260, easing from the high on 18th June at -150.
- Much lighter options open interest into this area. July $9600s show 2.9k lots and July $10ks show 3k lots.
- A volume profile since the 20th May peak of $11,104.50 and the largest bars seen going through at $9800 and below.
- Weekly support into $9519 which is the 38.2% retracement taking the move from the $6955 trough mid July 2022 to that $11,104.50 peak.
- The its 21 week ma at $9352.
- Resistance into this week’s $9892 peak then the 8 week ma up at $10,021.
- See how mkt settled week ending 7th June at $9762.50 and has essentially been ending up unchanged in weeks since.
Nickel
- Nickel price has come back under pressure this morning but finally attracting some light consumer interest.
- CTA selling still evident in the money with the net short continuing to build driven particularly by fast money components.
- Shanghai aggregate open interest down 0.7k lots or 0.4%, minimal changes.
- Nickel feedstocks – nickel pig iron and nickel sulfate prices came under pressure for the past two weeks which has not been supportive to the nickel prices.
- Neither onshore stainless steel prices which came back under sell scrutiny overnight which brought further pressure to nickel prices.
- Most of the onshore renewable energy equity still edging lower too.
- Both Shanghai daily on warrant and weekly deliverable stocks seeing stock withdraws whilst LME on warrant stocks build up tiny.
- Price now finds itself between the $17 and $17.5ks which both show reasonable open interest out to Dec 2024. 1.2k lots each respectively in July alone.
- A volume profile since 20th May when price made the $21,750 peak and see how the volume bars have picked up on move below $18k.
- Next support into $17k with weekly support into $16,800 and the low from week ending 5th April.
- Then $16,535 from week ending 29th March.
- Resistance into 21 week moving average at $18,088 below which it has been trading since last week.
Zinc
- If you want to talk about the broad chop in our space zinc the best illustrator of that fact and since 7th June as it trades in a broad $2735-$2900 range.
- Particularly light turnover – running down 46% compared to 20d average with a $25v slim intraday range.
- Long liquidation continues since 29th May, with the medium-term money still liquidating their length.
- Shanghai aggregate open interest up 0.6k lots or 0.3%, minimal changes.
- Onshore zinc concentrate port stocks remained at 5k, running at its lowest level still. Supply remained tight.
- LME on warrant stocks has been largely unchanged whilst SHFE weekly deliverable stocks build up to 128kt which approach to the previous peak on 19thApril at 132kt.
- Shanghai July August spread traded into -60, easing from 25 on 13th June.
- LME zinc cash to 3s spread eased to $57.54 contango yday, from recent high on 17th June at $51.03 contango.
- For July the $2850s show 1.4k lots of oi.
- But in general options space in zinc incredibly light. You only just need to see September and on.
- A volume profile taken since the 21st May when price made the $3185 peak.
- Biggest bars going through $2850 and down.
- See if price can hold its 8 day ma at $2847.
- Weekly support into $2725/50.
- Resistance its 8 week ma at $2910 then $3k.
Lead
- The only metal whose turnover is running up 9% compared to 20d average.
- Fast money on LME lead has covered its short position this week even though most of the medium money now has exited its length. A net short covering prog seen on the LME.
- Shanghai aggregate open interest down 15.9k lots or 9.2% for the 2nd consec session.
- LME lead on warrant stocks unchanged this morning whilst SHFE daily on warrant and weekly deliverable continue to drop.
- LME cash to 3s spread settled at $39.95 contango, tightening up from $65.03 contango on 3rd June.
- July $2200s show 1.4k lots of open interest. Below the July $2150s and $2250s show 1.3k and 1.4k lots of open interest.
- Since making the $2359 peak on the 22nd May there have been some big exchanges. First around $2350 then just below $23000 and $2250 but the biggest volume bars have transacted between $2150-2200.
- Support into $2125/50 area on the weekly chart.
- Resistance into its 8 week ma at $2234 and this week’s $2245 high.
- Then the $2300 area.
Macro
- 14:45hrs S&P Global US PMIs
- 15:00hrs Leading Index
- 15:00hrs Existing Home Sales
LME Stocks
Shanghai On Warrant Stocks
Shanghai Weekly Deliverable Stocks
* For indicative purposes only, as at 09:45 UK time. Please contact the desk for live pricing
