Copper leads the base metals higher, but looking overbought

While the metals are busy rallying, some of the emerging market (EM) currencies are weakening, which s a warning that may mean risk is rotating out of EMs, this could cause other markets to stop and think.

The base metals closed mixed yesterday, November 10, average gains in three-month prices were 0.7%, but the market was polarised between copper prices that were up 3.6% at $5,617 per tonne and nickel prices that closed down 1.5% at $11,475 per tonne. Lead prices closed off 0.3%, aluminium prices were up 0.8%, tin prices gained 1% and zinc prices were up 0.4%. Spot precious metals were also mixed yesterday, gold prices closed off 1.2% at $1,260.75 per oz, platinum prices were off 1.6% at $975 per oz while silver prices were up 1% and palladium prices were up 2.7% at $689 per oz.

This morning, the base metals are up an average of 1.2%, aluminium and tin prices are little changed, lead prices are up 0.8%, zinc prices are up 1.2%, copper prices are up 1.6% at $1,261.60 per tonne, while nickel prices are flying with a 3.5% rally to $11,875 per tonnes. Volume has been high at 18,656 lots as of 06:17 GMT.

Precious metals this morning are mixed, platinum prices are off 0.5%, palladium prices are up 0.6%, while gold and silver prices are little changed, up 0.1% and 0.2% respectively.

In Shanghai, the January contracts are up an average of 2.5%, tin prices are bucking the trend with a 0.3% fall, the rest are up between 0.6% for lead and 6.7% in copper at Rmb 45,850 per tonne, see table below for more details. Spot copper in Changjiang, is up only 0.7 percent at Rmb 45,320-45,450 per tonne. The late surge in copper futures has pushed the spread into a contango equivalent of $58 per tonne, we expect it will revert to a backwardation tomorrow as either the physical market catches up, or the futures correct. The LME/Shanghai copper arbitrage ratio is at 1:8, which should mean the arb is open for some trading.

In other metals in China, January iron ore prices are up 5.9% to Rmb 614.50 per tonne. Spot seaborne prices are surging too with prices recently quoted at $74.20 per tonne. On SHFE, January steel rebar is up 2.2%, silver prices are up 1% and gold prices are down 1.7%. In international markets, spot Brent crude prices are little changed at $45.67 per barrel.

In FX, the dollar index is back in high ground at 98.59, conversely the euro is back in low ground at 1.0914, sterling is firmer at 1.2571, the yen was weakening yesterday, it reached 106.95, it was recently at 106.43, the aussie is at 0.7627 – given the boom in metals prices we would have thought it would be surging. EM currencies are considerably weaker, the yuan was recently quoted at 6.8128, the weakest since June 2010, which was just before the 6.80 peg changed, the Mexican peso at 20.5780, is weaker by 11 percent from the start of the month, and the other currencies we follow are all weakening at a fast pace. This suggests not all markets a reacting positively to the US election result – the weakness in EM suggest concern about protectionism.

Equities were mixed yesterday, the Euro Stoxx 50 closed down 0.3%, the Dow set a fresh record, it closed up 1.2%, but the Nasdaq closed down 0.8%. In Asia this morning, the Nikkei is up 0.2%, the Hang Seng is off 1.4%, the CSI 300 is up 0.7%, the ASX 200 is up 0.8%, but the Kospi is down 0.9%, the Sensex is down 1.6% and Indonesia’s JCI is down 3% – so some mixed patterns emerging.

The economic agenda is fairly quiet with German CPI and WPI being unchanged from the prior month, later there is data on UK construction and University of Michigan consumer sentiment and inflation expectations. FOMC member Stanley Fischer is also speaking at 2pm GMT – see table below for more details.

Three-month copper prices are leading the advance – prices have set a fresh high this morning for the year at $5,808 per tonne, which means prices have rallied $1,174.50 per tonne since October 21, some 25% over a period of 15 days. Nickel prices are also rising strongly, while the rest are either working higher, or are consolidating recent gains. Copper has shifted from being the underperformer to a recent over-performer. Chinese fund buying seems to be doing the pushing, we wait to see if European and US traders chase prices higher or take advantage of them.

The precious metals are mixed, gold and platinum prices are under pressure, but silver and palladium prices are getting some lift on the back of their industrial attributes. Given the nervousness in some EM markets, gold may well pick up some safe-haven demand.

 

Overnight Performance
GMT 06:17 +/- +/- % Lots
Cu 5706 88.5 1.6% 8918
Al 1767.5 -1 -0.1% 2181
Ni 11875 400 3.5% 3889
Zn 2550 29.5 1.2% 3386
Pb 2155.5 17.5 0.8% 263
Sn 21550 -10 0.0% 19
  Average   1.2%       18,656
Gold 1261.6 0.85 0.1%  
Silver 18.64 0.04 0.2%  
Platinum 970.3 -4.7 -0.5%  
Palladium 692.8 3.8 0.6%  
  Average PM   0.1%  

 

SHFE Prices 06:17 GMT RMB Change % Change
Cu 45850 2880 6.7%
AL  14145 265 1.9%
Zn 14145 390 2.8%
Pb 17290 110 0.6%
Ni 96490 2940 3.1%
Sn 152580 -440 -0.3%
Average change (base metals) 0   2.5%
Rebar 3085 65 2.2%
Au 281.5 -4.95 -1.7%
Ag 4284 41 1.0%

 

Economic Agenda
GMT Country Data Actual Expected Previous
4:30am Japan
Tertiary Industry Activity m/m
-0.1% -0.2% 0.0%
 7:00am Germany
Final CPI m/m
0.2% 0.2% 0.2%
 7:00am Germany
WPI m/m
0.4% 0.2% 0.4%
9:30am UK
Construction Output m/m
  0.2% -1.5%
2:00pm US 
FOMC Member Fischer Speaks
     
3:00pm US 
Prelim UoM Consumer Sentiment
  87.4 87.2
3:00pm US 
Prelim UoM Inflation Expectations
    2.4%