• Brent crude oil price back above $82 per barrel – adding to inflationary pressures…
  • …could be another factor to force central banks’ hands in policy tightening.
  • There are also fears that China's Evergrande debt problem is not the only one lurching out there.

Base metals
Of the LME base metals, all but tin were in negative territory this morning. The three-month tin price was up by 0.5% at $35,190 per tonne, while the rest were down between 0.1% for lead ($2,161 per tonne) and 1.1% for copper ($9,042.50 per tonne). The ones in the middle were down by an average of 0.6%.

Despite this morning’s general weakness, the metals remain quite buoyant overall, in that dips keep being bought into. This is despite all the issues mentioned above and the snarling up of supply chains and the chip shortage.

Precious metals
Spot gold was down by 0.3% at $1,753.41 per oz this morning, while the rest of the precious metals were down by an average of 0.6% - the firmer dollar and higher bond yields being headwinds for gold.

Wider markets
The yield on US 10-year treasuries has pushed higher again and was recently at 1.57%, up from 1.49% at a similar time on Tuesday and above last week’s high of around 1.55%. Inflationary concerns seem to be in the driving seat given the rally in energy prices.

Asia-Pacific equities were weaker on Wednesday morning, this despite rebounds in western equities on Tuesday: the Nikkei (-0.7%), the ASX 200 (-0.58%), the Hang Seng (-0.08%) and the Kospi (-0.99%).

Currencies

The US Dollar Index was consolidating around the 94.10 level this morning – the range over the past week being 93.67-94.51. This is the highest range the dollar has held in about a year.

The other major currencies were mixed: sterling (1.3606) was holding on to recent rebound gains, the euro (1.1586) remains weak, the Australian dollar (0.7259) was consolidating and the Japanese yen (111.76) was weakening.

Key data
Key data out on Wednesday includes German factory orders, UK construction purchasing managers’ index, EU retail sales and US data on the ADP non-farm employment change and crude oil inventories.

In addition, Federal Open Market Committee (FOMC) member Raphael Bostic is scheduled to speak twice.

Wednesday’s key themes and views
Given all the negative news and potential developments it is surprising the base metals are not suffering more, which makes us think that the combination of constrained supply chains, economic recovery and growing pent-up demand, because of the shortages, means industry and manufacturers will not want to be short of inventory.

The potential negative developments over China’s property debt and global inflation concerns, especially with oil surging, suggests gold is well placed to move higher, but is being held back because higher bond yields are also attracting investors.