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Weekly Base Metal Macro Economic Slides

By: Natalie Scott-Gray, Senior Metals Demand Analyst, EMEA and Asia region

Weekly Base Metal Macro Economic Slides

Key Takeaways: 

  • Market Overview & Price Drivers
    • Highlighted that August saw better-than-expected gains across all metals, mainly due to US dollar weakness and volatility driven by monetary policy expectations rather than trade uncertainty.
    • Noted mixed global economic data: US manufacturing data was below expectations, while China’s PMI and Services data surprised to the upside.
    • Emphasized ongoing risk-off sentiment themes in the background, including UK budget concerns and political developments in Japan, which influenced safe haven buying yesterday.
  • Copper
    • Observed growing bullish sentiment due to expected supply tightness in China, with SMM forecasting a notable drop in refined copper output in September.
    • Anticipated that peak construction season (September/October) could further reduce domestic inventories and support copper prices.
  • Aluminium
    • Stated the market is in a wait-and-see mode for demand recovery, with only slight signs of improvement in downstream sectors.
    • Noted that inventory outflows are not yet strong, so close monitoring is needed for signs of increased demand.
  • Zinc
    • Pointed out a regional divide: LME inventories are low and declining, supporting prices, but China’s inventories are rising, putting pressure on domestic prices.
    • Mentioned increased supply outlook due to early completion of the Kipushi mine, which could add negative pressure.
  • Lead
    • Maintenance season in China is starting, which could support prices due to supply constraints, but overall LME lead fundamentals remain mediocre.
    • Noted a wide cash-to-three-month spread despite some inventory declines.
  • Nickel
    • Long-term demand outlook is positive due to Chinese infrastructure policy, but short-term pain expected from US anti-dumping duties on stainless steel imports from several countries.
    • Predicted contraction in exports from affected countries, but domestic demand in China may rise during peak season.
  • Macro Themes & Data to Watch
    • Emphasized the dollar’s central role in price movements, with focus on upcoming US Fed meeting and non-farm payroll data.
    • Bloomberg expects limited upside risk for payrolls; market consensus is for a soft print, which would support a rate cut.
    • Next key US data is CPI, seen as the final hurdle before the Fed meeting, with continued dollar volatility expected.
  • Fed Independence & Legal Risks
    • Discussed ongoing legal challenges to the Fed’s independence, specifically the court case involving Governor Lisa Cook, which could have long-term policy implications.
  • China Economic Outlook
    • Recent PMI data suggests possible improvement, but July data was weak across retail sales, industrial production, fixed asset investment, and property.
    • Anticipated more stimulus and rate cuts as China aims for positive momentum ahead of the next five-year plan.
    • Noted that while there are signs of optimism, significant challenges remain.
  • Trade & Geopolitical Risks
    • US court ruled some Trump-era tariffs illegal, but tariffs remain until at least mid-October; outcome could significantly reduce tariffs on China if upheld.
    • Highlighted ongoing uncertainty in Europe due to a possible no-confidence vote in France, which could lead to new elections or another Prime Minister.
    • Covered outcomes from the Shanghai Cooperation Organization meeting, including improved China-India relations and increased multilateral cooperation.
    • Mentioned rising geopolitical tensions in the Gulf of Venezuela, with US and Venezuelan military maneuvers affecting the region.
  • Europe & ECB
    • Reported a slight uptick in eurozone inflation; expects ECB to keep rates on hold at the next meeting.

China’s PMI and Economic Outlook

  • Recent PMI Data: Highlighted that China’s Services PMI beat market expectations, showing accelerated activity growth, and the Manufacturing PMI also surprised to the upside, reversing expectations of a second month in recession. Noted that PMI is often seen as a barometer for the month ahead, suggesting potential for an improving outlook.
  • Stimulus and Policy Expectations: Mentioned the likelihood of increased stimulus and rate cuts as China enters Q4, with the government aiming to end the year with positive momentum, especially since 2026 marks the start of the 15th Five-Year Plan.
  • Construction Season Impact: Emphasized that September and October are peak construction months in China, which could further support metals like copper, zinc, and aluminium if inventory levels respond positively.
  • Cautious Optimism: While acknowledging some signs of improvement, stressed that StoneX is not promoting outright bullishness due to ongoing challenges, including weak July data (retail sales, industrial production, fixed asset investment, rising jobless rate), continued declines in property investment and residential sales, and a GDP deflator on track for a tenth month of contraction.
  • Global Context: You noted that, despite these challenges, August PMI readings globally (including China, the US, and the eurozone) showed expansion, which brought some optimism to markets.
  • Base Metals

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