Industrial metals falling in love with Trump, but for how long?


  • Base and precious metals experienced strong volatility last week as a result of the unexpected victory of Trump in the US elections.
  • Base metals (especially copper and nickel) enjoyed strong gains last week thanks to stronger growth and inflation expectations in spite of some profit-taking on Friday.
  • But precious metals (except palladium) came under intense selling pressure, driven by a notable increase in the dollar and US real interest rates.
  • Looking ahead, base metals are vulnerable to profit-taking in coming days because we think that investors have reacted too aggressively to Trump’s victory. Precious metals may come under further downward pressure in the days ahead until the fall in prices attract some strategic physical buying.
  • We will pay close attention to such key variables as global risk sentiment, the dollar, US real interest rates, and economic conditions in emerging markets because of their significant influence on base and precious metals at this crucial juncture.

All base metals reached year-to-date highs last week on the LME. Copper and nickel meaningfully outperformed their complex, climbing by 11.6% and 7.2% respectively while other base metals posted weekly gains of 1-2%. On the contrary, all precious metals, with the exception of palladium, posted significant losses last week – platinum performed the worst, closing the week down 5.6%, while gold sold off by 4.8% and silver by 4.6%, in sharp contrast with the stellar palladium’s performance of 8.2%.

This morning, global risk sentiment is stronger. Base metals on the LME are enjoying further upward pressure amid lower volumes than last week, with the exception of nickel, down 0.4%, the only base metal in negative territory. Zinc, climbing 2.7%, performs the strongest. But precious metals are weakening further as a result of a lack of safe-haven bids. Gold is falling the most, down 0.9% while platinum, edging 0.2% higher, is the only metal to post a gain.

In Shanghai, base metals are mixed, with the complex down 0.7% on average. Lead, appreciating 1.3%, performs the strongest, while tin and nickel, selling off 3.6% and 3.0% respectively, are the worst performers.

Meanwhile, spot copper in Changjiang is up 2.1% at 46,180-46,380 yuan, while the backwardation with the futures is at $152 per tonne, and the LME/Shanghai copper arb ratio is unchanged from last Friday at 1:8.0.

Bonds – Global bond markets were hit by a massive sell-off last week because the election of Trump took the market by surprise, with investors unwinding significantly their long exposure to bonds as a result of stronger inflation expectations caused by Trump’s aggressively dovish fiscal stance.  

Stocks – Broad equities enjoyed strong gains last week, boosted by a surge in risk global risk appetite – investors were inclined to play the “reflation” trade, holding the view that Trump’s plans to significantly boost public infrastructure spending will stimulate markedly the US economy and therefore, produce positive spillovers to growth in the rest of the world. Looking at equities this morning, Asian equities are mixed. While the Hong Kong Sand Index (-1.7%) and the Kospi (-0.3%) are moving lower, the Nikkei 225 (+1.8%) and the CSI 300 (+0.7%) are showing some strength.

FX – The dollar experienced a robust rally last week in spite of an initial sell-off post-Trump win. We think the dollar should continue to strengthen against most currencies in coming months because Trump’s policies (corporate tax cuts, less regulation, more infrastructure spending) are in essence bullish for the dollar. The dollar continues its appreciation this morning. 

In terms of the day ahead, the economic agenda will be fairly light today after the release of Asian data this morning. In Japan, economic data was stronger than expectations – the preliminary print for GDP showed a quarterly expansion of 0.5% in the third quarter, compared with expectations of 0.2%, and revised industrial production grew by 0.6% month-on-month in September. In China, however, the raft of economic data was fairly mixed, with industrial production and retail sales rising at a slower pace than expected in October and fixed asset investment over January-October beating slightly market expectations. This should induce some weakness across base metals.


Near-term outlook:

Base metals may witness some downward pressure in the days ahead, principally because we think that investors last week reacted too aggressively to Trump’s surprise victory in the US elections. Still, we do not think that this bout of profit-taking may last too long as a result of buying on the dips from investors willing to play the “reflation” trade for longer. Because copper climbed exponentially in an unsustainable manner last week, we view it is as the most vulnerable on the downside, especially considering its particularly overstretched spec positioning.

Precious metals should continue to weaken until risk aversion resumes. The combination of a stronger dollar, higher US real interest rates, and firmer risk appetite is producing a very damaging macro environment for the complex, especially gold and platinum. Because we think that the wave of euphoria in equities induced by Trump’s victory is likely to continue for longer, we would not be surprised by a strong sell-off across the board this week.


Overnight Performance
GMT 05:01 +/- +/- % Lots
Cu 5624 65 1.2% 5616
Al 1769 19.5 1.1% 2529
Ni 11365 160 1.4% 1604
Zn 2545.5 66 2.7% 2463
Pb 2150.5 22.5 1.1% 178
Sn 21400 -80 -0.4% 17
  Average   1.2%   12,407
Gold 1216.76 -11.24 -0.9%  
Silver 17.239 -0.106 -0.6%  
Platinum 938.5 1.5 0.2%  
Palladium 670 -2 -0.3%  
  Average PM   -0.4%  


SHFE Prices 05:01 GMT RMB Change % Change
Cu 45140 -190 -0.4%
AL  14165 75 0.5%
Zn 20905 185 0.9%
Pb 17510 230 1.3%
Ni 91900 -2830 -3.0%
Sn 146660 -5500 -3.6%
Average change (base metals) 0   -0.7%
Rebar 3012 -31 -1.0%
Au 272.05 -10.35 -3.7%
Ag 4016 -252 -5.9%


Economic agenda
Date GMT Country Data Actual Expected Previous
Sunday, 13 November 2016 11:50pm Japan
Prelim GDP q/q
0.5% 0.2% 0.2%
Sunday, 13 November 2016 11:50pm Japan
Prelim GDP Price Index y/y
-0.1% 0.3% 0.7%
Monday, 14 November 2016 1:00am Japan
BOJ Gov Kuroda Speaks
Monday, 14 November 2016 2:00am China
Industrial Production y/y
6.1% 6.2% 6.1%
Monday, 14 November 2016 2:00am China
Fixed Asset Investment ytd/y
8.3% 8.2% 8.2%
Monday, 14 November 2016 2:00am China
Retail Sales y/y
10.0% 10.7% 10.7%
Monday, 14 November 2016 4:30am Japan
Revised Industrial Production m/m
0.6% 0.0% 0.0%
Monday, 14 November 2016 10:00am EU
Industrial Production m/m
  -0.9% 1.6%
Monday, 14 November 2016 3:00pm EU
ECB President Draghi Speaks