By Leon Westgate
The Chinese economic data overnight was pretty positive overall, with solid Retail Sales, lower than expected inflation (both CPI and PPI) and stronger than expected Fixed Asset Investment.

GDP and IP figures were lower than expected, however counter intuitively perhaps, this suggests the Chinese governments measures to rein in spending have been successful, with the country perhaps now in a position to ease off and even loosen its purse strings over the balance of the year.

The base metals have rallied this morning, after coming under pressure during late trading on Wednesday. Solid Chinese data, a weaker dollar and better than expected earnings from JP Morgan have combined to provide a boost to the metals ahead of US trade. With much of the base metals complex towards the top of their recent ranges, prices are stalling, with a solid performance form the US equity markets needed if the metals are to find the impetus to break higher.

This afternoon is busy in terms of US data, with the release of the June PPI figures and the latest jobless data, followed by Industrial Production and Philadelphia Fed index. Significant departures from consensus expectations may well impact on the FX and equity markets, however, assuming the data comes out more or less in-line with consensus, market sentiment will likely be dictated by company earnings statements instead.

Copper traded sideways during Wednesday, albeit in quite a wide intraday range. A late sell-off emerged after the 5pm kerb close, with the red metal proceeding to open lower overnight, perhaps in expectation of weaker Chinese data. In the end those fears were largely unfounded, while a weaker dollar has also helped copper rally from its opening levels heading into the afternoon.

Elsewhere, LME inventories have continued to come under pressure, with on-warrant stocks falling by 3,975 mt today. As was the case on Wednesday, the main location for the activity has again been US warehouses, with a 3,775 mt jump in cancelled warrants in New Orleans accounting for most of the activity.

In other news, Chinese copper output surged to 422,000 mt in June, up 26% y-o-y to a new record. Given the spate of smelter shutdowns taking place over the next few months, it will b interesting to see if these kind of production levels can be maintained.

After a succession of inventory declines over the past few weeks, on-warrant aluminium LME inventory posted a net 11,200 mt gain. The location for the inflow was Long Beach, which saw 12,575 mt enter the warehouse. The inventory data had little impact on price however; with aluminium climbing comfortably back above $2,000.

Nickel has continued to see steady inventory declines, though the pace of those inventory draws does seem to have slowed a little. The background of falling LME inventories is lending support to prices, though nickel remains range bound and in need of an additional boost if prices are to break higher.

Courtesy: Standard Bank

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