Metals unlikely to shine as profit-taking remains the driving force

  • Base metals continue their consolidation while precious metals prove more resilient on stronger risk aversion.
  • Selling pressure across base metals may continue in coming days on further profit-taking amid a muted data flow.
  • Precious metals may not be ready to rally yet but a resurgence of risk aversion early next year could prompt some investors to re-engage on the long side.

This morning, Thursday December 22, base metals on the LME are showing marked losses amid stronger volumes, with worst performer zinc selling off 2%.

Long liquidation continues across the complex on the back of dollar strength and stronger risk aversion. Precious metals are generally flat, reflecting an unwillingness from investors to rebuild long positioning as a result of strong downward momentum in preceding trading sessions.

This follows on from a generally negative day on Wednesday when base metals weakened by an average of 0.5%, with nickel, the worst performer, seeing a drop of 1.1%, while precious metals dropped an average of 0.6%, with palladium declining the most in its complex, down 1.1%.

This morning, base metals on the SHFE are trading on a weaker foot, with the complex down 1.3% on average. Zinc, down 2.3%, performs the weakest while aluminium, up 0.3%, is the only metal in positive territory.

The US government bond market strengthened slightly on Wednesday, with the 10-year US bond yield closing at 2.53%, down from a recent peak of 2.60% last week. This reflected a moderate decrease in risk appetite on the back of growing political tensions between the US and China after President-elect Trump picked Peter Navarro, a China hawk, to run the US National Trade Council.

Looking at equities this morning, Asian equities are generally consolidating. Apart from the CSI 300 (+0.01%) which is broadly flat, the Hong Kong Sand Index (-0.78%), the Kospi (-0.11%) and the Nikkei 225 (-0.09%) are all trending lower. Broad equities were slightly weaker yesterday despite a fall in volatility. Most European equities posted losses, with the Euro Stoxx closing down 0.26% at 3,271. US equities consolidated a little due to a lack of sustained upward momentum after reaching record highs earlier in the week. The Dow Jones closed down 0.16% at 19,942.

In FX, the dollar is little changed today, with the DXY currently trading at 102.96, after consolidating yesterday due to stronger risk aversion. The yuan is slightly weaker today after recovering in the first half of the week. The dollar is likely to continue to be highly influenced by global risk sentiment.

In terms of the day ahead, the economic calendar is fairly busy. In Europe, economic data released earlier this morning showed a stronger-than-expected pick-up in German import prices in November. Investors will now focus on Italian retail sales for October while the ECB is due to release its Economic Bulletin. In the US, investors will pay particular attention to the release of the final Q3 GDP reading. The data flow is likely to exacerbate volatility in the metals markets, especially given poorer liquidity conditions as the year-end nears.

Base metals are likely to witness further selling pressure in the coming days as traders may reduce their overstretched long positioning built in previous months as the year draws to a close. Although the data flow may be muted until the end of the year, selling pressure across the complex could be exacerbated by low liquidity conditions. From a tactical perspective, we prefer nickel over tin.

Precious metals are not ready to shine until the end of the year, we feel. Investors may continue to remove their bullish bets to take advantage of positive global risk sentiment and lower volatility across risk asset classes. But the level of complacency in the financial markets may take some participants by surprise early next year, which may trigger a strong rebound across the complex.

Overnight Performance
GMT 06:41 +/- +/- % Lots
Cu 5461 -44.5 -0.8% 3834
Al 1717.5 -9.5 -0.6% 594
Ni 10680 -140 -1.3% 1686
Zn 2568 -51.5 -2.0% 1890
Pb 2145 -25.5 -1.2% 294
Sn 20910 -35 -0.2% 14
  Average   -1.0%    8,312
Gold 1130.49 -0.36 0.0%  
Silver 15.879 -0.051 -0.3%  
Platinum 912.9 0.9 0.1%  
Palladium 656.5 0.5 0.1%  
  Average PM   0.0%  


SHFE Prices 06:41 GMT RMB Change % Change
Cu 44550 -590 -1.3%
AL  12825 50 0.4%
Zn 20870 -425 -2.0%
Pb 18095 -295 -1.6%
Ni 90560 -2170 -2.3%
Sn 143550 -940 -0.7%
Average change (base metals)     -1.3%
Rebar 3074 -84 -2.7%
Au 263 -0.55 -0.2%
Ag 3980 -15 -0.4%


Economic Agenda
GMT Country Data Actual Expected Previous
7:00am EU German Import Prices m/m 0.7% 0.2% 0.9%
9:00am EU ECB Economic Bulletin      
10:00am EU Italian Retail Sales m/m   0.4% -0.6%
1:30pm US Core Durable Goods Orders m/m   0.2% 0.8%
1:30pm US Final GDP q/q   3.3% 3.2%
1:30pm US Unemployment Claims   255K 254K
1:30pm US Durable Goods Orders m/m   -4.9% 4.6%
1:30pm US Final GDP Price Index q/q   1.4% 1.4%
2:00pm US HPI m/m   0.4% 0.6%
3:00pm US Core PCE Price Index m/m   0.1% 0.1%
3:00pm US Personal Spending m/m   0.4% 0.3%
3:00pm US CB Leading Index m/m   0.2% 0.1%
3:00pm US Personal Income m/m   0.3% 0.6%