• After the upward spikes in LME cash prices, ahead of the October prime data, it is perhaps not surprising a reality check is underway…
  • …but once again let us see how far the pullback goes.
  • Broader markets upbeat; Asia-Pacific equities and bond yields showing optimism.

Base metals
LME three-month base metals prices were down across the board this morning with losses averaging 1.3%, led by a 2.3% drop in aluminium ($3,031 per tonne), with tin ($37,000 per tonne) down by 2% and copper off by 1.2% at $9,996 per tonne.

The most-active base metals contracts on the SHFE were weaker by an average of 3.3%, led by a 6.5% fall in November zinc and a 6% drop in December aluminium. November copper was off by 2.8% at 73,170 yuan ($11,439) per tonne.

Precious metals
The precious metals were mainly firmer with the spot prices for gold, silver and platinum up between 0.3% and 0.7%, while palladium bucked the trend with 0.8% fall. Spot gold was up $5.30 per oz at $1,774.20 per oz, this despite stronger bond yields.

Wider markets
The yield on US 10-year treasuries sprung higher again, suggesting optimism about the recovery; it was recently at 1.65%, up from 1.58% at a similar time on Tuesday.

Asia-Pacific equities were mixed on Wednesday morning: the Nikkei (+0.06%), the Hang Seng (+1.21%), CSI 300 (-0.13%), the Kospi (-0.44%) and the ASX 200 (+0.53%).

Currencies
The US Dollar Index has slipped after risk appetite has improved and was recently at 93.71, down from 94.06 at a similar time on Monday.

With the dollar weaker, the other major currencies were mixed: sterling (1.3804) and the Australian dollar (0.7491) were firmer, the euro (1.1646) flat and the Japanese yen (114.50) were weaker because high energy prices are likely to widen Japan’s trade deficit.

Key data
Economic data out on Wednesday includes Germany producer prices index (PPI), a barrage of price data from United Kingdom, current account and consumer prices from the European Union and US data on crude oil inventories, the Beige Book and the Federal budget balance.

In addition, US Federal Open Market Committee members Charles Evans and Randal Quarles are scheduled to speak.

Wednesday’s key themes and views

The latest spike up in base metals prices seems to have run its course for now and some intervention by the LME and reports that China said it would work to lower coal/energy prices may have prompted profit-taking.

Once again, we will need to wait to see how far prices pull back and how long they stay down for. Given the gains and the speed of the recent rallies, we should brace for increased volatility. We also question whether the impact on manufacturing and retail sales from the semiconductor shortage, snarled-up supply chains and high metal and energy prices has been reflected in broader markets. If they have a delayed negative reaction then that could further weigh on metals’ prices down the road.

Gold prices are getting some lift despite the stronger bond yields, this may be due to the weaker dollar, or perhaps the likelihood of increased volatility in the base metals is prompting some haven buying.