METALS MORNING VIEW 05/06: Base metals prices pare gains amid lackluster risk sentiment

London Metal Exchange three-month base metals prices pared gains during morning trading on Tuesday June 5, with copper, nickel and zinc prices consolidating lower, while the rest were largely unchanged.

On average, the base metals prices were down by 0.1%, while total trading volume was low, with only 5,496 lots traded as at 06.32am London time.

With the dollar index trading above 94.00 again, it is unsurprising to see limited gains in the base metals as well as the precious metals. Gold and silver prices have edged lower, both down by 0.1%, while platinum and palladium prices were down by 0.3% and 0.2% respectively.

Following a slightly disappointing manufacturing purchasing managers’ index (PMI) number for May last week, China’s Caixin services PMI released earlier this morning was in line with market expectations at 52.9, lending slight support to the Shanghai Futures Exchange base metals complex.

On average, SHFE base metals prices increased by 0.4%, with lead prices leading the advance with a 3.6% gain, followed by rises of 0.2% and 0.1% in zinc and copper respectively. These gains helped offset the 0.1% and 1.6% losses seen in nickel and tin prices respectively.

Risk sentiment greatly improved at the start of the trading week, with US equities leading the charge following a slew of positive economic releases at the end of last week, while European markets struggled due to political jitters and the strong dollar index capped gains in Asia.

The economic agenda is fairly busy today and likely to dictate market sentiment. We have a host of services PMI data out of Europe and the United States, while other data of note from the US includes the ISM non-manufacturing PMI and Jolts job openings.

Last Friday’s positive labor data supported US equities on Monday, with the Dow Jones index closing the day up 0.72% and the S&P500 up 0.45%, while the Nasdaq Composite traded near record highs of 7,600. European equity markets were recovering from the political jitters in Italy and Spain, but the disappointing reading for the European Union’s Sentix investor confidence has capped gains. Meanwhile, stock markets in Asia were only marginally higher this morning, with the Nikkei up by 0.28% and the Hang Seng up by 0.5%.

Global investors have momentarily shrugged off the ongoing trade issues between the US and its key allies. Even though there has been little progress, US-China negotiations are likely to continue as both countries work to avoid a full-blown trade war. But trade tensions are likely to run high during the G-7 summit on June 8-9 after the Trump administration slapped Section 232 protectionist tariffs on the EU, Canada and Mexico.

Still, despite the challenging macro backdrop, the base metals complex has coped rather well, with most metals prices confidently higher apart from the lagging LME zinc and tin prices. That said, a host of positive economic data today could improve market confidence and that could bode well for the base metals prices.

As the political uncertainty recedes in Europe, haven-demand has subsided, with gold and silver under fresh selling pressure. Gold prices have consolidated lower at $1,292 per oz, while silver continue to hover at $16.40 per oz. The robust dollar index is likely to keep both metals under downward pressure in the short term.

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