- The London Metal Exchange (LME) reopens today after being closed for holidays earlier this week.
- The poor liquidity conditions stemming from the year-end holiday season is likely to intensify the sell-off in base metals and the rebound in precious metals.
- Global risk sentiment remains positive amid a muted global data flow.
This morning, Wednesday December 28, base metals on the LME are lower, posting an average loss of 0.6%.
Nickel is the worst performer, falling 2.2%, followed closely by lead, weakening by 1.8%. Copper and aluminium are the only metals in positive territory, showing gains of 1.3% and 0.6%, respectively. But precious metals are enjoying strong gains, with the complex rising 1.7%.
In Shanghai, base metals on the SHFE are trading much stronger, posting an average gain of 1.7%. Tin is the strongest performer, climbing 3.3%, followed by copper, rising by 2.7%. Aluminium, down 0.5%, is the only metal to post a loss. At the same time, spot copper in Changjiang has climbed 3.0% to 45,360-45,560 yuan, while the contango with the futures is at $37 per tonne, and the LME/Shanghai copper arb ratio is at 1:8.2.
The US government bond market weakened slightly yesterday, with the 10-year US bond yield closing up at 2.56%, slightly below its recent peak of 2.60% reached in mid-December. Investors continue to expect stronger economic growth and higher inflation thanks to pro-growth policies implemented by US President-elect Donald Trump’s incoming administration.
Broad equities ended stronger yesterday amid thin trading volumes. In Europe, the Euro Stoxx 50 closed up 0.1% at 3,279. In the USA, the Dow Jones edged 0.06% higher to 19,945 while the S&P 500 moved 0.22% higher to close at 2,269. In Asia this morning, equities are trading mixed. While the Kospi is down 0.87% and the CSI 300 is down 0.44%, the Hang Seng is up 1.0% while the Nikkei 225 is relatively flat.
The US dollar is also flat this morning, with the DXY trading at 102.8, broadly unchanged since the middle of December. The US dollar has enjoyed significant gains since the victory of Donald Trump in the US presidential elections on expectations of stronger domestic growth dynamics and a faster monetary policy tightening cycle. The horizontal consolidation in the US dollar may continue early next year before another powerful rally emerges. This should remove temporarily a strong headwind for base and precious metals.
The economic agenda is very light today. Investors will focus on the release of US pending home sales for November this afternoon and the Bank of Japan summary of opinions tonight. Despite a muted data flow, volatility across the metals may pick up considering the poor liquidity conditions during the year-end holiday.
Base metals may continue to trade lower in the days ahead as investors will continue to deleverage during this holiday season rather than taking tactical bets. Excessive bullishness seen in some metals, most notably copper, seems to have paused for now, the latest CFTC statistics showed. Due to poor liquidity conditions, the fluctuations across the complex could intensify.
Precious metals may continue to rebound in the coming days, principally because the US dollar rally seems to have paused while US real rates appear to have peaked temporarily. Because global risk sentiment remains presently positive, we expect gold and platinum to lag behind silver and palladium.
|SHFE Prices 07:55 GMT||RMB||Change||% Change|
|Average change (base metals)||1.7%|
|3:00pm||US||Pending Home Sales m/m||0.6%||0.1%|
|11:50pm||Japan||BOJ Summary of Opinions|