METAL MORNING VIEW 19/09: Metals consolidate Monday’s gain, expect choppy trading until FOMC statement

Base metals prices on the London Metal Exchange are for the most part weaker this morning, Tuesday September 19. The exceptions are aluminium and copper prices that are up by 0.6% and 0.1%, respectively, with the latter at $6,537 per tonne. The rest of the complex are off between 0.3% for zinc prices and 0.9% for nickel prices. Volume has been above average with 8,054 lots traded as of 06:27 BST.

This follows a bullish day on Monday that saw prices climb an average of 1%, ranged between 0.1% gains for aluminium prices and 2.6% for zinc prices, while copper prices closed up 0.7%.

Precious metals prices are down by an average of 0.3% this morning. Gold prices are off by 0.1% at $1,306.71 per oz, silver prices are down by 0.4%, platinum prices are little changed and palladium prices are off by 0.5%. This follows a mixed performance on Monday that saw losses in gold (-0.9%), silver (-2.1%) and platinum (-0.7%), while palladium bucked the trend with a 1.3% rise. By and large, the precious metals seem to be in correction mode, although palladium prices are managing to tread water.

On the Shanghai Futures Exchange (SHFE) this morning, the base metals are up across the board by an average of 1.7% as they follow the LME’s performance on Monday. Lead remains the best performer with a 3.4% gain, followed by zinc (+2.8%), aluminium (+2.1%), tin (+1.1%) and copper prices that are up by 0.9% at 50,790 yuan ($7,707) per tonne. Nickel prices lag with a 0.2% gain. Spot copper prices in Changjiang are up by 0.3% at 50,700-50,820 yuan per tonne and the London/Shanghai copper arb ratio has climbed to 7.77, from 7.71 on Monday. The pick-up in the ratio suggests SHFE prices are rebounding at a faster pace than LME prices.

The slide in the rebar and iron ore prices has slowed or halted, with SHFE steel rebar prices down by just one yuan, while January iron ore prices on the Dalian Commodity Exchange edged up by 0.1% to 505.50 yuan per tonne. Gold and silver prices on the SHFE are off by 0.3% and 1.4%, respectively.

In international markets, spot Brent crude oil prices are down by 0.19% at $55.28 per barrel and the yield on US ten-year treasuries has firmed to 2.22%, while the German ten-year bund yield has climbed to 0.45%.

Asian equities this morning are slightly weaker, the exception being the Nikkei that is up 2% but it is catching up having been closed on Monday. The Hang Seng, ASX 200 and Kospi are off by 0.1% and the CSI 300 is down by 0.3%. This follows another positive session on Monday in the USA where the Dow closed up by 0.3% at 22,331.35, while in Europe, the Euro Stoxx 50 climbed 0.3% to 3,526.74.

The dollar index’s is consolidating around 91.88, little changed from this time on Monday. Sterling is strong at 1.3542, but holding below Monday’s high of 1.3618, the euro is firm at 1.1983, the yen at 111.84 is weaker, as is the Australian dollar at 0.7976. All in all, the dollar now seems to be waiting direction from tomorrow’s US Federal Open Market Committee (FOMC) decisions and statements.

The Chinese yuan has been weakening since September 8 – it was recently quoted at 6.5920, the recent peak being 6.4345 – this on the back of a decision by the People’s Bank of China to relax rules on shorting the yuan. The other emerging market currencies we follow are also on a back footing, perhaps anticipating a slightly more hawkish tone from the FOMC tomorrow.

Data out today includes EU current account, German and EU ZEW economic sentiment, with US data including building permits, housing starts, current account and import prices.

The corrections in the LME base metals may have run their course as buying appears to have the upper hand with prices generally getting some lift. The buying has been most effective on lead, zinc, aluminium and tin; copper’s rebound looks fragile and nickel is still undecided on which way to move. The rebounds could be dead-cat bounces so we need to be wary, but generally with the metals’ fundamentals looking stronger, we have expected the pullbacks to lead to buying opportunities. For now we would let the markets show their hand more, especially ahead of the FOMC meeting, as should the dollar catch a tailwind following the FOMC announcements then a stronger dollar could be a headwind for the metals.

Gold prices are retreating, but we see this as profit-taking after a strong run higher since early July. Again traders may be wary about whether the dollar is about to rebound so are reducing exposure. We expect dips to be well supported as the geopolitical situation in North Korea is likely to deteriorate further before a solution is found, so there may be more haven buying to be done. A pick-up in geopolitical tensions could also weigh on the broader markets, which could add demand for havens.

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