Volume has been above average with 10,328 lots traded, with more zinc traded, 3,427 lots, than copper, 3,385 lots. This comes after another day of weaker prices on Tuesday that saw prices close down an average of 2.6%, led by a 5.5% drop in lead prices, but also saw falls of around 3.8% in nickel and zinc prices. The decline in metal prices in recent weeks has tended to be interspersed with up days, so we would not read too much into today’s firmer tone just yet.

Gold prices are holding up well with spot prices little changed at $1,289 per oz, silver prices are off 0.4% at $18.21 per oz, while the PGMs are up around 0.5%. This follows a general day of weakness on Tuesday that saw gold and platinum prices little changed, while silver prices closed down 1.1% and palladium prices closed off 2.5%.

Base metals prices on the Shanghai Futures Exchange are down again this morning, with prices off an average of 2%, led by a 2.9% drop in zinc prices. Given the rebound in LME prices this morning, the weakness in SHFE implies prices are reacting to Tuesday’s weakness on the LME. June copper prices are off 0.8% at 45,920 yuan per tonne and spot copper prices in Changjiang are down 0.6% at 45,870-46,070 yuan per tonne and the LME/Shanghai copper arb ratio was trading around 8.13, meaning the arb window remains closed.

In other metals in China, September iron ore futures have continued to fall, they are down 1.5% on the Dalian Commodity Exchange, while on the SHFE, steel rebar prices are down 1%, gold prices are unchanged and silver prices are off 1.1%. In international markets, spot Brent crude oil prices are little changed at $54.75 per barrel and the yield on the US ten-year treasuries is weaker at 2.19%.

Equities were weaker on Tuesday with weaker commodity prices, including oil, and some poor earnings weighing on sentiment too. The Euro Stoxx 50 closed down 1.1% and the Dow closed off 0.6% at 20,523. The weaker tone has generally flowed through to Asia this morning, where the Hang Seng is off 0.6%, the CSI 300 is down 1.1%, the ASX 200 is off 0.5%, although the Nikkei is up 0.2%, helped by a pause in the yen’s run of strength.

The dollar index dropped to a low of 99.49 yesterday, it was weakened by falling inflation expectations on the back of weaker oil and commodity prices and as some disappointment seeped into sentiment about the US administration’s ability to push through with stimulative policy. Currencies firmed as a result, with the euro at 1.0717, the pound sterling climbed to 1.2824, it was bid higher on the back of the election announcement, but the Australian dollar weakened to 0.7523 and the yen at 108.67 is consolidating. In emerging market currencies, the yuan is firmer at 6.8777 and most of the other currencies we follow are consolidating.

The focus on the economic calendar today is likely to be EU CPI data, there is also data on the Italian and EU trade balances and in the USA there is data on the crude oil inventories and the Beige book – see table below for more details.

The short-to-medium term trends in most of the base metals remain downward with zinc, lead and nickel seeing steep declines and considerable chart damage, while copper’s trend is sideways-to-down, tin still seems to be consolidating after its December/February weakness, while aluminium’s trend remains strong. The loss of upside momentum in most of the metals since mid-February has increased the chance of stale long liquidation and downward trends will increase the risk of short selling too. Overall, we see these pullbacks as an adjustment to running ahead of the fundamentals since the US presidential election - we continue to expect the fundamentals to strengthen and therefore expect dips to attract bargain hunting.

Gold prices remain strong as geopolitical tensions are running high and are likely to remain so ahead of the French presidential election. After the first vote, we would expect increased volatility until the second vote. Silver prices are generally following gold’s lead, but the weakness in industrial metals seems to be weighing on prices too, palladium also seems to have run into overhead supply, while platinum prices are starting to look more supported and robust European vehicle registrations should provide support.