METALS MORNING VIEW 03/01: Metals prices consolidate, but face numerous headwinds

Three-month base metals prices on the London Metal Exchange were mixed this morning, Thursday January 3, with zinc, aluminium and lead up by between 0.4% and 0.7%, copper up by 0.1% at $5,880 per tonne, and nickel and tin lower by 0.8% and 0.2% respectively.

Volume across the complex has been high with 11,375 lots traded as at 06.58am London time.

Wednesday’s trading saw three-month LME base metals prices drop by an average of 1.2% – led by a 3.2% drop in aluminium. Copper fell to a new multi-month low of $5,831 per tonne, some 20.6% below the June high, a correction of 20% is generally considered indicative of a bear market.

Gold prices continued to put in a strong performance so far on Thursday morning, with prices up by 0.4% at $1,290.94 per oz – the highest since June 2018. Silver is tracking gold’s firmer tone, while the platinum group metals (PGMs) were flat with palladium prices in high ground and platinum prices just above low ground.

In China this morning, base metals prices on the Shanghai Futures Exchange were split into two groups with nickel and tin price rising by 1.3% and 0.4% respectively, while the rest were down by between 1.1% and 1.4%, with the most-traded February copper contract down by 1.2% at 47,270 yuan ($6,886) per tonne.

Spot copper prices in Changjiang were down by 1.4% at 47,230-47,410 yuan per tonne and the LME/Shanghai copper arbitrage ratio was recently at 8.04.

In wider markets, the spot Brent crude oil price was weaker, off by 0.72% at $54.45 per barrel, with the price reflecting the weaker macroeconomic environment. The yield on US 10-year treasuries has weakened further, it was recently quoted at 2.6235%. The yields on the US 2-year and 5-year treasuries have inverted again with the yields at 2.4685% and 2.4581% respectively. The German 10-year bund yield was also weaker at 0.1570%. All of which suggests risk-off sentiment.

Asian equity markets were mostly weaker on Thursday: Hang Seng (-0.32%), Kospi (-0.81%), the CSI 300 (-0.16%), although the Australian ASX 200 was up by 1.36%.

The dollar index rebounded on Wednesday in line with a general flight to safety, which saw the index rise to 96.97, but it was recently quoted at 96.51. The yen, meanwhile, surged to 105.00 at one stage, but was recently quoted at 107.51, compared with 109.50 at a similar time on Wednesday. The euro (1.1371), sterling (1.2547) and the Australian dollar (0.6961) are consolidating after showing weakness on Wednesday.

The yuan was moving sideways around the 6.8740 level and seems to be trending slightly higher since the lows seen in October/November. The other emerging market currencies we follow are mixed, but are not showing too much stress, suggesting the weakness in the broader markets is focused on mature markets.

On the economic agenda on Thursday, there is data on Spanish unemployment change, EU money supply and private loans, the UK’s construction purchasing managers’ index (PMI), with US data on employment, the Institute for Supply Management (ISM) manufacturing PMI, ISM manufacturing prices and total vehicle sales.

With the exception of tin, base metals prices on the LME are continuing the journey lower. Given the economic outlook, the continued United States-China trade dispute and risk-off in other markets, there is little to be bullish about in the metals, other than the general trend of falling stocks, which on their own should be supportive and could become bullish if they continue to fall, but for now sentiment and momentum favors further moves into oversold territory.

The weakness in other markets is leading to a flow into haven assets and gold is benefiting from that, along with silver, the yen and tier-one government bonds.

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