EUROPEAN COMMODITIES UPDATE: Industrials subdued amid risk aversion and a surprise contraction in the Chinese Caixin Manufacturing PMI

Analysis details (10:05)

• WTI and Brent front-month futures are modestly softer intraday as the Dollar remains firm and risk sentiment tilts lower. The complex settled higher by over a dollar yesterday as gains were fuelled by hopes surrounding China’s stimulus - with WTI and Brent posting their best month since January 2022. Overnight, a surprise contraction in the Chinese Caixin Manufacturing PMI kept prices on the back foot, whilst the overall recessionary commentary from the European PMIs only kept prices subdued in the morning. The complex has however trimmed its earlier losses as the clock ticks down to the OPEC+ JMMC on Friday, whereby participants expect the current pact (which does not include the voluntary cuts) to be rolled over, whilst eyes remain on whether Saudi will opt to roll over its 1mln BPD voluntary cuts or unwind offline production by 250-500k BPD. Nonetheless, participants will be on guard for OPEC sources. Oil giant BP released its Q3 energy outlook alongside its earnings: for the third quarter, BP expects oil prices to be supported by seasonal demand and the OPEC+ production restrictions, whilst in terms of gas, BP sees the risk of an earlier than normal seasonal fill of European gas storage to continue to weigh on European gas and Asian LNG prices absent disruptions to supply. In the US, Henry Hub gas prices are expected to find support from coal-to-gas switching in the power sector. Finally, BP expects industry refining margins to remain above historical average levels, supported by low product inventories and seasonal demand in the US.


• Over to metals, spot gold is pressured by the firmer Dollar awaiting the US ISM and JOLTS data, with the yellow metal sandwiched between its 100 and 21 DMAs at USD 1,968.25/oz and USD 1,950.60/oz respectively, whilst yesterday’s low at USD 1,950.30/oz. Base metals are on the back foot amid the broader risk aversion, stronger Greenback, and the surprise contraction in the Caixin Manufacturing PMI. The Caixin release suggested “Both manufacturing supply and demand contracted. The market has been lukewarm, with sluggish demand, and supply has shrunk in tandem. The readings for total new orders and output were the lowest since December and January, respectively. Notably, new export orders fell sharply in July, as risks of an overseas recession mounted, and China’s external demand was clearly insufficient. The gauge for new export orders plumbed the lowest since September.” 3M LME copper holds onto levels above USD 8,750/t after falling from overnight highs north of USD 8,850/t.

01 Aug 2023 - 10:11- MetalsData- Source: Newsquawk