Aluminium (+0.8%) and zinc (+0.8%) are leading the pack higher, while copper (-0.1%) is the only LME base metal to trade in negative territory.

The slight upward pressure across the industrial metals coincides with a positive risk appetite in the West, evident in gains in European/US stock index futures. But risk sentiment remains fragile in Asia, with the Shanghai composite index off by 1.5% and down for a third trading day in a row.

This weakness comes amid a tense geopolitical backdrop, especially after the United States, United Kingdom and France launched missile strikes against Syria over the weekend, in response to an alleged chemical attack in the Syrian city of Douma on April 7. The strikes were denounced by Russian President Vladimir Putin as an “act of aggression” and by Iran’s Supreme Leader Ayatollah Ali Khamenei as a “war crime”.

The base metals on the Shanghai Futures Exchange are giving mixed performances this morning, with zinc (-0.8%) the worst performer, while nickel (0.7%) is up the most. SHFE base metals prices are underperforming slightly against LME prices in spite of a stronger dollar versus the yuan. The USD/CNY is at 6.28, up a slight 0.15% after a drop of 0.51% last week. Copper prices in Changjiang are down by 0.4% at 50,320-50,540 yuan ($8018-8054) per tonne and the LME/Shanghai copper arb ratio stands at 7.37.

Turning to the precious metals, the complex is marginally up, with gold (-0.1%) and silver (flat) underperforming the platinum group metals (+0.2%). Given the risk-on mood across the financial markets in spite of intensifying geopolitical tensions between the US and Russia, investors express a low buying interest for haven-related trades. Platinum and palladium are performing relatively better thanks to their stronger correlation with risk assets, especially base metals.

On the macro front, investors will pay a close attention retails sales for March in the US as well as the Empire State manufacturing index for April. Atlanta Federal Reserve President Raphael Bostic is due to speak about the economy later today. The dollar could experience some volatility should data/the Fed’s view deviate from the consensus. In turn, this would produce spillover effects across the metals complex.

Base metals may experience some profit-taking in the days ahead as a result of continued trade tensions between the US and China, and elevated geopolitical tensions between the US and Russia, with the US due to announce fresh sanctions against Russia later today. Aluminium, which rallied by 11% last week, is the most vulnerable to a bout of profit-taking unless the US sanctions continue to target Russian aluminium producers.

Precious metals may gather steam if there is a pick-up in risk aversion. While buying pressure in gold and silver has been essentially driven by exchange-traded fund buying after speculators liquidated long positions, a positive swing in spec sentiment could emerge sooner rather than later. A powerful short-covering rally, especially in silver whose spec positioning is extremely stretched on the short side, could take place.

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