MORNING VIEW: Base metals prices mostly firmer as weaker dollar provides support

There are potential headwinds – namely the rising US treasury yields and talk that US taxes may have to rise to help pay for the pandemic response and because both these could worry equity investors, a correction there could spill over to the metals.

• Asian-Pacific equites were mainly weaker this morning
• US 10-year treasury yields continue to climb

Base metals
The LME three-month base metals prices were mainly up this morning; the exception was lead that was off by 0.1% at $2,125 per tonne, while the rest were up by an average of 1% – led by 1.6% gains in nickel ($19,515 per tonne) and tin ($25,550 per tonne) and a 1.4% rise in copper ($8,729 per tonne). Aluminium ($2,146.50 per tonne) and zinc ($2,883 per tonne) were both up by around 0.2%. Supporting the stronger tone is that fact that volume has remained high for the second day running, highlighting the return of Chinese traders after the Lunar New Year holiday.

LME volume as of 6.50am London time was 20,556 lots, while at a similar time on Thursday it was 19,517 lots, compared with a more normal volume at a similar time of day of around 6,000 lots.

The most-traded base metals contracts on the SHFE were also mainly higher, again the exception was March lead that was down by 0.2%, while the more infrastructure-focused metals were up by an average of 3.3%, with April tin leading the way with a 6% rise, followed by April nickel that was up by 4.2%. April copper was up by 2.6% at 64,350 yuan ($9,939) per tonne.

Precious metals
Stronger bond yields and buoyant broader markets are weighing on spot gold prices that were recently quoted at $1,773.09 per oz – the recent significant low, seen in November, was $1,765.50 per oz.

Silver, platinum and palladium are all holding up better than gold, while their industrial and electrification properties shine.

Wider markets
The yield on US 10-year treasuries was firmer again on Friday and was recently quoted at 1.31%, up from 1.28% at a similar time on Thursday.

Asian-Pacific equities were mixed this morning: the Nikkei (-0.72%), the Hang Seng (-0.07%) and the ASX 200 (-1.34%) were weaker while the CSI 300 (+0.18%) and the Kospi (0.68%) were firmer.

Currencies
The US Dollar Index’s rebound ran into selling yesterday on the back of the worse-than-expected initial jobless claims and it was recently quoted at 90.52, compared with 90.89 at a similar time on Thursday.

The other major currencies were stronger this morning: the euro (1.2102), sterling (1.3973), the Australian dollar (0.7794) and the yen (105.63).

Key data
Friday has a busy economic agenda mainly with the releases of flash purchasing managers’ index (PMI) data for manufacturing and services, with data out in Japan, across Europe and the United States.

Data out already showed Japan’s flash manufacturing PMI climbed to 50.6 in February, from 49.8 in January. The United Kingdom’s GfK consumer confidence came in at -23 in February, compared with -28 in January, UK retail sales fell by 8.2% month on month in January, compared with a 0.4% rise in December, and German producer prices by climbed 1.4% month on month in January, compared with a 0.8% rise a month earlier.

Later, in addition to the PMI data releases, there is data on French consumer prices (CPI), the EU current account, UK industrial order expectations and US existing home sales.

In addition, UK Monetary Policy Committee member Gertjan Vlieghe and US Federal Open Market Committee (FOMC) member Tom Barkin are scheduled to speak.

Today’s key themes and views
Strong uptrends have got going again in February and we put that down to the fact recovery hopes are being boosted by the rollout of vaccines and the promise of more stimulus on top of the other stimulus that was announced last year. All this, combined with the huge underlying electrification theme paint a bullish picture for the metals, but we should expect dips along the way, and rising bond yields may be a trigger for some to pause for thought.

Gold prices are under pressure on the back of the stronger yield and the strong performances in other asset classes, which mean the opportunity cost of hold gold has risen. But given more talk of inflation, we expect gold will follow the overall direction of the industrial metals and oil.