• Control of US Senate, with the run-off elections in Georgia, could be market-moving…
  • …two democratic wins would strengthen President-elect Joe Biden’s hand and that could be seen as inflationary because fiscal policy could be that much stronger going forward
  • Asian-Pacific equity indices were mixed this morning, showing nervousness over more lockdowns and ahead of the US Senate run-offs

Base metals
Three-month base metals prices on the LME were up by an average of 0.6% this morning; aluminium ($2,025 per tonne) and lead ($2,057.50 per tonne) were down by 0.2% and 0.4% respectively, while the rest of the complex was up by an average of 1.1%, led by a 1.4% rise in nickel ($17,610 per tonne). Copper was up by 0.9% at $7,929 per tonne.

All of the most-traded base metals contracts on the SHFE were stronger this morning, although the degree of gains varied considerably. On average prices were up by 1.2%, with March tin leading the way with a 3.1% rise to 158,360 yuan ($24,471) per tonne, while copper was up the least with a 0.2% gain to 58,140 yuan per tonne – see table below for more details.

Precious metals

Gold prices are consolidating Monday’s gains; spot prices were down by 0.1% at $1,939.63 per oz, this after Monday’s high at $1,945.63 per oz. The rest of the precious metals were up by an average of 0.3% this morning. The weaker dollar and broad-based strength in commodities suggests a rising commodity tide is lifting most boats.

Wider markets

The yield on US 10-year treasuries was recently quoted at 0.92%, compared with 0.94% at a similar time on January 4.

Asia Pacific equities were mixed this morning: the CSI (+1.71%), the Kospi (+1.57%), the Hang Seng (+0.46%), the ASX 200 (-0.04%) and the Nikkei (-0.37%).

Currencies
The US dollar index is holding in low ground and was recently quoted at 89.72, slightly firmer than the 89.63 where it was at a similar time on Monday.

The other major currencies were mixed this morning: the euro (1.2268) and the Australian dollar (0.7711) were consolidating, sterling (1.3605) was weaker after the third lockdown was announced and the yen (102.92) was firmer.

Key data
Today’s economic agenda includes German retail sales, Spanish and German unemployment change, EU M3 money supply and private loans, along with US data including ISM manufacturing purchasing managers index (PMI), ISM manufacturing prices and total vehicle sales.

In addition, it is day two of the Organization of Petroleum Exporting Countries (OPEC), Joint Ministerial Monitoring Committee (JMMC) meeting and Federal Open Market Committee member Charles Evans is scheduled to speak at the American Economic Association Annual Meeting.

Today’s key themes and views
The strength of Monday’s gains was impressive because it reversed a lot of the weakness seen into the year-end and puts most metals within striking distance of recent highs. Tin, however, is forging ahead and has reached a high of $21,245 per tonne, a level last seen in April 2019. Between 2016 and 2019 there were three prominent highs in tin, two at $22,000 per tonne and one at $21,800 per tonne.

While we think much of the good news is already discounted in the metals prices, we are also very aware that prices can move well past their fundamental value when there is a macro underlying story (infrastructure spending) and a lot of hot money around. We wait to see if the rest of the base metals can follow tin into open water, it seems likely they will.

Gold’s acceleration to the upside on Monday suggests another up-leg is underway and if the Democrats take hold of the US Senate then the inflationary outlook might increase and that could fuel gold’s rally further. The OPEC meeting, Iran’s holding of a South Korean tanker, the weaker dollar and possibly the strong rally in Bitcoin that reached $34,000 per coin, are other factors to watch.