METALS MORNING VIEW 05/05: Metals prices remain vulnerable

Prices are down an average of 0.2% this morning, copper is up 0.2% at $5,552 per tonne, while the rest are lower by between 0.1% for aluminium and 0.4% for nickel – with the latter the only price trading below Thursday’s range. Volume has been above average with 6,639 lots traded as of 06:58 BST.

This follows another weak day on Thursday when prices closed down an average of 0.6%, but most of the weakness was seen in nickel prices that dropped 2.4% and copper prices that closed down 0.9% at $5,540.50, having earlier set a low at $5,594 per tonne.

Precious metals prices are firmer this morning with prices up average of 0.6%, gold prices are at around $1,233.20 per oz, this follows a mixed day’s performance on Thursday that saw gold and silver prices fall around 0.9%, while the PGMs were up 0.6%. Spot gold prices set a low at $1,225.75 per oz.

Shanghai Futures Exchange metal prices are mixed this morning with prices down an average of 0.6%, but that is skewed by a 2.8% fall in nickel prices and a 1% drop in copper prices to 45,090 yuan per tonne. Zinc prices are down 0.5%, while the others have eked out gains with lead prices up 0.2% and aluminium up 0.5%, tin prices are little changed. The LME/Shanghai copper arb ratio was around 8.15 on Thursday and at times during the day the arb window was open, the ratio is slightly easier at 8.13 this morning. Spot copper prices in Changjiang are off 0.9% at 45,170-45,290 yuan per tonne.

In other metals in China, September iron ore prices continue to fall, they are down 6.7% to 465.50 yuan per tonne on the Dalian Commodity Exchange, while on SHFE steel rebar prices are down 3.2%, gold prices are off 0.8% and silver is down 2%.

In international markets, spot Brent crude oil prices are down 1.6% at $47.51 per barrel and the yield on the US ten-year treasuries is around 2.34%.

Equities on Thursday saw the Euro Stoxx 50 closing up 1.2% but the Dow ended little changed at 20,951. In Asia this morning, equities are weaker with the Hang Seng off 1%, the CSI 300 is down 0.9%, the ASX 200 is down 0.7%, while the Kospi and Nikkei are closed. Perhaps the weakness in metals, now that oil prices have weakened, is starting to impact equities.

The dollar index weakened on Thursday, reversing the post US Federal Open Market Committee (FOMC) gains from Wednesday evening. The index at 98.75 is poised just above recent lows at 98.69 and looks in danger of breaking lower. This, despite firmer bond yields. A weaker dollar could start to underpin commodity prices. The euro is firm at 1.0976, as is the sterling at 1.2934, the yen is consolidating at 112.22, while the Australian dollar is weaker at 0.7392 dragged down by weaker commodity prices, especially iron ore.

In emerging market (EM) currencies, the yuan is flat at 6.8961, while most of the other EM currencies we follow are weaker, which may well signal a slight pick-up in broad market concern.

The economic agenda will be focused on the US employment report, non-farm employment is expected to rise 194,000, after a disappointing 98,000 jobs were created in March. Before that there is data on EU retail PMI. With the market concerned about a slowdown in the US economy any disappointment in the data could set-off some risk-off trading, especially as weaker commodity prices are also signalling weakness. US Federal Reserve chair Janet Yellen, and FOMC member Charles Evans are speaking this evening – see table below for more details.

The correction in the base metals continues, copper prices have joined nickel in breaking below recent, important, support levels so the question is will the others follow? With oil, iron ore and steel prices, also falling heavily, the path of least resistance is to the downside for now. We are not overly bearish on the outlook for global growth; some metals’ fundamentals have potentially changed, i.e. in nickel with regards to supply from the Philippines, but we generally see this weakness as coming from stale long liquidation following the rally when prices ran ahead of the fundamentals during the Trump reflation trade.

If equities catch the cold that commodities are suffering, then we could be in for a period of broad market price weakness, but that may be supportive for gold prices, especially if the dollar breaks lower too. The more industrial precious metals may, however, struggle.

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