Base metals consolidate Thursday’s gains

Base metals prices on the London Metal Exchange are broadly lower this morning, Friday October 6, with losses ranging between 0.1% for aluminium and 0.3% for lead. Nickel and copper prices are bucking the trend, however, with three-month nickel prices once again leading on the upside with a 0.9% gain to $10,650 per tonne, while copper prices are up by 0.1% to $6,698 per tonne.

With China still on holiday, volume has been light with 1,177 lots traded as of 06:26 BST. Chinese markets resume trading on October 9.

Thursday’s trading on the LME was generally upbeat with the exception of nickel that was little changed at $10,560 per tonne, while the rest closed up with average gains of 1.3% – led by a 2.7% rally in copper to $6,689.50 per tonne. Copper prices initially rallied on news of an earthquake in Chile, although early reports suggested damage was minimal to copper assets.

Gold prices are slightly weaker this morning, off 0.1% at $1,267.64 per oz, while the rest are firmer with silver prices at $16.593 per oz, platinum up by 0.3% at $914.30 per oz and palladium up by 0.1% at $939 per oz. On Thursday, gold, silver and platinum prices were down between 0.1% for silver and 0.5% for gold, while palladium prices rallied 1.3% to $938 per oz.

In international markets, spot Brent crude oil prices are little changed at $56.97 per barrel, the yield on US ten-year treasuries has edged higher to 2.35% and the German ten-year bund yield is a little easier at 0.45%.

Most Asian equities are open today, the exceptions are the CSI 300 and Kospi, but the rest we follow are upbeat with the Nikkei and Hang Seng up by 0.3% and the ASX 200 up by 1%.This follows a strong performance on Thursday, where in the USA, the Dow closed up by 0.5% at 22,775.39 – it set a fresh intraday record high at 22,777.04; and in Europe, where the Euro Stoxx 50 closed up 0.52% at 3,613.54.

The dollar index at 94.04 is climbing and approaching the August rebound peak of 94.15, clearance would confirm that this is more than just a counter-trend move, we think. Today’s US employment report could cause some confusion depending on how ready the market is for a weak jobs number as the impact of Hurricanes Harvey and Irma will no doubt cause a negative reading. Given the dollar’s strength it is not surprising that the euro is weaker at 1.1700, sterling at 1.3080 is plummeting, the yen is weaker at 112.96, as is the Australian dollar at 0.7744. Most emerging market currencies we follow have been quite choppy on the back of the recent gyrations in the dollar, but most are on a back footing, with the Mexican peso at 18.4910, showing particular weakness.

The economic agenda is focused on the US employment report, but there is a lot of other data out in addition to that. Japan’s cash earnings climbed 0.9% after a 0.6% fall previously, its leading indicators climbed to 106.8% after a 105.2% reading and German factory orders climbed 3.6%. Data out later includes France’s Government budget balance and trade balance, UK house prices, Italian retail sales, US final wholesale inventories and consumer credit. In addition, US Federal Open Market Committee members William Dudley and Robert Kaplan are speaking.

The bulls seem back in control on the base metals, with tin breaking above resistance to challenge the January highs and copper breaking out of its base too and aluminium putting in a strong performance. Lead and zinc remain in high ground, while nickel continues to lag, although it is leading the gains this morning. We remain quietly bullish for the metals fundamentals, but with lead and zinc prices in historically high ground some fast and extended moves could be seen, so their performances may be less than quiet. Overall, sentiment seems bullish again, to varying degrees, but liquidity is low without China’s involvement. We wait to see how China wades in next week, but ahead of that is US employment data out this afternoon, which could cause some volatility. That said, because the data will be skewed by hurricane damage, the market may not pay too much attention to it, in which case the present trends could dominate.

The fresh strength in the dollar is weighing on the precious metals, recent signs of base building have looked weak and bullion prices, along with platinum prices look vulnerable. Palladium is showing some independence, but given how weak platinum is, we would expect support to be nearby.

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