METALS MORNING VIEW 09/08: LME base metals under pressure despite dollar weakness

Base metals traded on the London Metal Exchange are under slight downward pressure in spite of some dollar weakness and solid global risk appetite. The only exception is aluminium, up about 1%, reflecting positive micro dynamics.

Aluminium volumes traded are elevated, with an average of 12,760 lots traded as of 04:35 BST. This comes after an overall slightly weaker session on Friday, in part owing to the notable rebound in the dollar following the release of a solid US jobs report for July.

Precious metals prices are about unchanged, with the exception of platinum, down a little (0.3%), after outperforming its peers at the end of last week. This quiet start to the week follows a marked sell-off on Friday, mostly driven by a strong increase in the dollar and US real rates post US jobs numbers, which probably prompted some speculative selling across the board.

On the Shanghai Futures Exchange this morning, the base metals complex is marginally up. Tin and lead performed the best, up 0.7% and 0.4%, respectively, while copper, aluminium and nickel are each down a small 0.1%. Spot copper prices in Changjiang are up 0.3% at 50,050-50,350 yuan ($7,463-7,508) per tonne and the LME/Shanghai copper arb ratio is up at 7.92 (from 7.90 on Friday).

Equities are off to a good start to the week, with the Nikkei 225 (+0.61%), Hong Kong Hang Seng Index (+0.35%), and the KOSPI index (+0.49%) all up after a robust rally across broad-based equities on Friday, reflecting a risk-on environment in spite of continuing tensions between the USA and Russia following the recent US sanctions and Russia’s retaliations as well as continued heightened uncertainty over the North Korean crisis.

The dollar index is experiencing some weakness on Monday, down 0.22%, after enjoying a decent appreciation of 0.76% on Friday driven by positive US macro surprises in the labour market. Whether the recent strength in the dollar, following its 15-month low last week, continues is far from certain considering the excessively bearish sentiment toward the greenback at present.

The macroeconomic agenda is quite light today. Investors will monitor the leading indicator index in Japan for June, the Sentix investor confidence index in Europe for August and the labour market condition index in the USA for July. Also, there will be a speech by Minneapolis Fed president Neel Kashkari.

Base metals are likely to trade sideways with a possible upward bias because investors continue to express a strong interest for reflation-oriented trades following signs that China’s economic growth momentum remains solid in the third quarter of the year. Copper appears to be the most well placed to benefit from this risk-on environment due to its significant potential for short-covering considering its excessive gross short spec positioning on the Comex.

Precious metals may witness some buying on the dips once the market finishes to digest strong US jobs numbers released last Friday. Yet, we acknowledge that the rebound in the dollar may continue a little longer after it reached an oversold territory. This may therefore undermine the uptrend in the precious metals complex. We tend to favour platinum at this juncture, because sentiment seems to have shifted from very negative to very positive in recent days.

Metal Bulletin publishes live futures reports throughout the day, covering major metals exchanges news and prices.