METALS MORNING VIEW 01/03: Metals prices consolidate, albeit on a back footing

Base metals traded on the London Metal Exchange are for the most part consolidating after recent weakness, the exceptions are aluminium prices that are up by 0.7% at $2,147 per tonne and lead prices that are down by 0.5% at $2,490 per tonne. The rest are little changed, with copper prices recently quoted at $6,943 per tonne.

Volume has been average with 8,708 lots traded as of 07.12 am London time.

This follows a day of general weakness on Wednesday that saw copper, zinc and lead fall between 2.2% and 2.9%, with nickel prices off by 1.4%, while aluminium and tin were little changed.

Precious metals prices are mixed this morning with gold, silver and platinum prices by off around 0.2%, while palladium prices are up by 0.4%. This follows a similar performance on Wednesday that saw palladium unchanged, while the rest were down between 0.1% and 0.4%.

On the Shanghai Futures Exchange, the base metals are for the most part weaker, led by a 1.3% drop in lead prices and a 0.9% fall in copper prices to 52,290 yuan ($8,261) per tonne. Tin prices are down by 0.6% and nickel and zinc prices are little changed, while aluminium prices buck the trend with a 0.6% gain. Spot copper prices in Changjiang are off by 0.7% at 51,940-52,080 yuan per tonne and the LME/Shanghai copper arbitrage ratio has edged out to 7.53, from 7.51 on Wednesday.

In other metals in China, iron ore prices are up by 0.3% at 544.50 yuan per tonne on the Dalian Commodity Exchange. On the SHFE, steel rebar prices are up by 0.5%, while gold and silver prices are off by around 0.5%.

In wider markets, spot Brent crude oil prices are firmer at $64.84 per barrel, while the yield on US 10-year treasuries has eased to 2.86%, as has the German 10-year bund yield at 0.66%.

Equity markets in Asia are mixed this morning: Nikkei (-1.56%), Hang Seng (+0.12%), CSI 300 (+0.63%), ASX 200 (-0.71%) and the Kospi is closed. This follows weakness in western markets on Wednesday, where in the United States the Dow Jones closed down by 1.5% at 25,029.20, and in Europe where the Euro Stoxx 50 closed down by 0.55% at 3,438.96.

The dollar index’s rebound has cleared the high from February 9 at 90.57, the index was recently quoted at 90.63, this shows a double bottom in place on the chart and suggests the dollar has further to rise. A more hawkish US Federal Reserve may well underpin that. The dollar’s firmness is keeping the euro (1.2207) capped, is weighing on sterling (1.3758) and the Australian dollar (0.7801), but the yen is firmer (106.80). The yuan has weakened too, moving to 6.3394 and the emerging market currencies we follow are also weaker.

It is a heavy day on the economic front - data already out shows Japan’s final manufacturing purchasing managers’ index (PMI) edge up to 54.1 from 54.0, as did China’s Caixin manufacturing PMI that came in at 51.6 from 51.5, but Japan’s consumer confidence slipped to 44.3 from 44.7. UK house prices dropped 0.3%, having previously climbed 0.8%. Data out later includes final readings on manufacturing PMI out across Europe, with additional data on Italian and EU unemployment, UK lending as well US data including personal income, spending and prices, initial jobless claims, manufacturing PMI, ISM manufacturing PMI, construction spending, natural gas storage and total vehicle sales. In addition Federal Reserve chair Jerome Powell is speaking.

Base metals prices have been under pressure; tin and nickel prices are holding up relatively well, but long liquidation seems to be weighing on the others. We should now get an update on how bullish underlying support is by seeing how far prices dip and how long it is before they rebound. With most of the metals recently capped it does look as though consumers have not felt the need to chase prices higher, but we do expect them to be keen bargain hunters.

We are not surprised by gold’s reaction to the latest Federal Reserve speak and the stronger dollar, and further strength in the dollar could keep downward pressure on gold prices. Although given the possibility of equity and bond markets becoming more jittery, gold may start to attract more haven buying - so we would be on the lookout for that.

Metal Bulletin publishes live futures reports throughout the day, covering major metals exchanges news and prices.

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