By Walter de Wet
Equity markets remain under pressure in Europe. While the US futures market indicates that US equities may open higher today, the S&P and Dow remain stubbornly below their 200-d MA. Base metals still have an unusually high sensitivity to movements in equity markets.
The positive PMI manufacturing index reading in the US has failed to support base metals, as the market continues to look to China (its PMI index has fallen to 53.9 in May, from 55.7 in April) and global equity markets.
Copper is under pressure. Since Monday, we have seen increased reluctance in Asia to buy copper. While the Shanghai Composite index managed to close marginally in the green today, sentiment towards Chinese equities remains negative. This is weighing on copper demand out of China.
Therefore, the SHFE/LME arbitrage window for copper remains closed, which is worsening the pressure on copper. While there has been decent buying interest in copper below $6,600, this could fade if equity markets in the US turn negative later today.
Zinc was its 5% limit down in Shanghai, and LME zinc touched $1,810. Zinc is increasingly looking to copper for direction and unless the red metal sees renewed buying interest zinc should continue to struggle.
