METALS MORNING VIEW: Higher metals prices attract selling

Base metals prices on the London Metal Exchange are for the most part weaker this morning, Wednesday October 25. Tin prices are the exception as they are unchanged, but they are also already relatively weak.

The rest of the complex is down by an average of 0.9%. Nickel prices lead with a 1.7% decline to $11,840 per tonne, followed by copper prices that are down by 1.4% at $6,944 per tonne, while zinc prices are 1% weaker, lead prices are off by 0.8% and aluminium prices are down by 0.4%.

Volume has been above average with 6,996 lots traded as of 06:50 BST.

This follows a general day of strength on Tuesday, when all bar lead closed higher. Lead prices were down by 1.1% at the close, while copper prices, which had been up by as much as 1.3% at the European open yesterday, gave back earlier gains to close up by 0.4%.

Precious metals prices are down across the board this morning with losses ranging from a 0.2% drop in spot gold prices, recently at $1,274.27 per oz, to a 0.4% fall in palladium prices to $960 per oz. Gold, silver and platinum prices were down by an average of 0.5% on Tuesday, while palladium prices climbed 0.8%.

Base metals prices on the Shanghai Futures Exchange (SHFE) are mixed with copper prices off by 0.5% at 55,020 yuan ($8,293) per tonne, lead prices down by 1.6%, and tin prices little changed, while the rest of the complex is stronger. Nickel prices lead on the upside with a 0.9% gain, followed by aluminium and zinc prices which are firmer by 0.3% and 0.1%, respectively. Spot copper prices in Changjiang are down by 1% at 55,410-55,610 yuan per tonne and the London/Shanghai copper arbitrage ratio is stronger at 7.91, compared with 7.84 on Tuesday, which shows LME copper prices have weakened more than SHFE prices.

The steel-orientated metals in China are weaker this morning with iron ore prices dropping by 1.6% to 452.50 yuan per tonne on the Dalian Commodity Exchange, while steel rebar prices on the SHFE are off by 0.7%. Gold and silver prices on the SHFE are down by 0.2% and 0.3%, respectively.

In international markets, spot Brent crude oil prices are down by 0.36% at $58.31 per barrel. The yield on US ten-year treasuries has firmed to 2.41% and the German ten-year bund yield is also stronger at 0.47%.

Equities in Asia are generally positive, but perhaps most noteworthy is the Nikkei which is off by 0.4%, breaking 16 consecutive days of gains. The Hang Seng is up by 0.4%, the CSI 300 and the Kospi are up by 0.2% and the ASX 200 is up by 0.1%. Western markets were firmer on Tuesday; in the USA, the Dow closed up by 0.72% at fresh record high of 23,441.76, while in Europe, the Euro Stoxx 50 closed up by 0.05% at 3,610.69.

The dollar index at 93.94 is well placed to work higher to challenge the top of the recent 92.75-94.27 range – the jury is still out as to whether this is a pause in the downward trend that has been in effect all year, or whether it is the start of a turning point for a move higher – the latter looks likely. If so then that could prove to be a headwind for the metals. That said, we are still awaiting US president Donald Trump’s decision on who will be the next US Federal Reserve chair, so the dollar could see some short-lived volatility. The euro at 1.1763 is consolidating and it is looking possibly toppy, but with the European Central Bank (ECB) rate decision and press conference tomorrow, it could move either way. Sterling is looking weaker at 1.3131, the Australian dollar at 0.7724 has broken lower and the yen at 113.83 is also looking weak. As such, all else being equal, the dollar looks bullish and the currencies are looking bearish – but much will depend on the ECB’s actions/outlook and Trump’s decision with regards to the Fed chair.

The Chinese yuan remains weak, it was recently quoted at 6.6409, and the other emerging currencies we follow are on a back footing – which also points to a firmer dollar.

Today’s economic data includes German Ifo business climate, UK gross domestic product (GDP), high street lending and index of services, while US data includes durables goods orders, house price index, new home sales and crude oil inventories. Tuesday’s flash manufacturing purchasing managers’ index data was bullish across most of Europe and in the USA.

Another show of strength in copper ran into selling and the same applied to the other base metals, which suggests scale-up selling – perhaps there is some profit-taking and book squaring ahead of next week’s LME Week. We would also watch developments affecting the dollar and currencies, we could be at a turning point for the dollar – if it does turn higher then that may well attract more profit-taking and producer selling. Our view of late has been to remain quietly bullish, but expect trading to become choppier as prices are generally in high ground, so we should expect more bouts of scale-up selling along the way – this seems to be playing out.

Gold prices are under pressure and the other precious metals are following its lead – again the firmer dollar and potential for more dollar strength, while the geopolitical scene is calm, are weighing on prices. Needless to say, North Korea also remains a potentially bullish factor.

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