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Base Metals Plunged on Profit-Taking. Aussie Reversed Gains Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Wed Dec 06 17 00:49 ET

Base metals declined across the board with copper and nickel prices sank more than -4%. The selloff was mainly driven by year-end profit-taking, using an excuse of inventory increase. The LME copper contract, for delivery in March, slumped to 2 months' low of 6507.5 before settling at 6 543, down -4.51%. The latest data shows that copper inventory in LME warehouse rose 10.65K tonnes to 192.55K tonnes. China's mixed PMI data released last week also triggered the decline as China takes up 40% of the world's copper consumption. The corresponding Nickel contract plummeted -4.57% as previous bets on electric vehicles boom dissipated. Aussie is the major currency that has the biggest link to base metal prices. AUDUSD has inevitably erased all of the gains made in Asia-Pacific session (driven by ratail sales data) on Tuesday. Currently trading at 0.758, the pair rose to a 3-week high of 0.7653 yesterday, before settling at 0.7604, up +0.21%. Staying in the antipodean currency horizon, NZDUSD strengthened +0.47% as acting RBNZ Governor Grant Spencer hinted more flexibility in the inflation target, triggering hawkish interpretation by the market. The greenback firmed modestly higher against major currencies with the DXY index adding +0.2% for the day.

Oil prices strengthened further although the gains were capped by a report showing gasoline and distillate stock-builds. The industry-sponsored API estimated that US crude oil inventory declined -5.48 mmb in the week ended December 1. For refined oil products, gasoline and distillate stockpiled jumped +9.2 mmb and +4.26 mmb respectively. The EIA report today probably shows a -3.4 mmb fall in crude oil inventory. Both gasoline and distillate stockpiles should have increased, by +1.74 mmb and +0.97 mmb, respectively.

In his speech about the implications of low inflation on monetary policy, RBNZ Governor Spencer noted that the persistently low inflation is "causing our flexible inflation targeting approach to become more flexible. In pursuing our long term price stability objective, relatively more weight is being attached to output, employment and financial stability". The market interpreted the comments as bearing hawkish bias, as the central bank might not be obliged to keep the policy rate low until the inflation target mid-point is reached.

On the dataflow, US' ISM non-manufacturing index surprising fell to 57.4 in November from 60.1 previously. The market had anticipated a milder drop to 59. The details of the report suggest that all key indices dropped last month. The non-manufacturing business activity Index slipped -0.8 point to 61.4 while the new orders index plunged -4.1 points to 58.7. The employment Index decreased -2.2 points to 55.3 while the prices index fell -2 points to 60.7. All in all, the non-manufacturing sector in the US continued to growth in November, though at the slower rate. The ISM noted in the report that survey respondents remained confident that "the economy and sector will continue to grow for the remainder of the year". Separately, the final estimate of the Markit services PMI was revised -0.2 point lower to 54.5, compared with consensus of a rise to 55.3. US trade deficit surprisingly widened to US$ 48.7B in October, from an upwardly revised US$ 44.9B a month ago. The market had anticipated a milder increase in deficit to US$ 46.2B.

Markit's final services PMIs for the Eurozone and some of its member states were also released. For the region as a whole, the reading stayed unchanged at 56.2 in November. The reading for Germany, the largest Eurozone economy, slipped to 54.3 from 54.9 previously. For France and Italy, the services PMIs were higher to 60.4 and 54.7, from 60.2 and 52.1, respectively.

Bank of Canada meeting is the biggest event for the day. However, we do not expect any change on the policy rate. The ADP would release its estimate on the US payrolls change in November, offering more hints to Friday's official report. The Eurozone would release its retail PMI for November, while Germany's factory orders data for October would also be published.


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