METALS MORNING VIEW 03/08: No let up in downward pressure in metals prices

Three-month base metals prices on the London Metal Exchange were for the most part weaker on the morning of Friday August 3, with the complex down by an average of 0.2%.

Aluminium and nickel prices were unchanged to slightly higher, while lead prices led on the downside with a 0.6% fall and copper prices were off by 0.3% at $6,124 per tonne.

This follows a mixed day on Thursday, when aluminium, nickel and tin prices closed down, while copper, zinc and led prices rose.

Volume has been light, with 4,800 lots traded as at 06.47am London time.

Gold and silver prices were both off by 0.1%, while the platinum group metals were up by 0.3%. Spot gold prices recently traded at $1,207.85 per oz – this after a down day on Thursday when gold prices dropped 0.6%.

In China, base metals prices on the Shanghai Futures Exchange were mixed with copper, aluminium and zinc prices up by an average of 0.4%, while lead, nickel and tin prices were down by an average of 1.1%. The most-actively traded September copper contract was up by 0.2% at 49,330 yuan ($7,218) per tonne.

Spot copper prices in Changjiang were up by 0.2% at 49,190-49,320 yuan per tonne and the LME/Shanghai copper arbitrage ratio was at 8.06 after 7.97 on Thursday.

In other metals in China, the September iron ore contract on the Dalian Commodity Exchange was up by 2.1% at 483.50 yuan per tonne. On the SHFE, the October steel rebar contract was up by 1.2%, while the December gold and silver contracts were off by 0.2%.

In wider markets, spot Brent crude oil prices were up by 0.17% at $73.25 per barrel this morning. The yield on US 10-year treasuries was weaker at 2.9847%, while the German 10-year bund yield was similarly weaker at 0.4470%.

Asian equity markets were for the most part weaker again on Friday: Nikkei (-0.02%), Hang Seng (-0.10%), CSI 300 (-0.92%), ASX200 (-0.10%), while the Kospi climbed 0.77%. This follows a weaker performance in western markets on Thursday; in the United States, the Dow Jones closed down by 0.03% at 25,326.16, while in Europe the Euro Stoxx 50 closed down by 1.14% at 3,469.21.

The dollar index climbed on Thursday and was pushing higher again this morning, it was recently quoted at 95.18, but is still within its recent 93.71-95.66 range. On the chart, it looks like the dollar is building the right shoulder of a large inverse head-and-shoulder pattern, which is a bullish formation. Thursday’s strength in the dollar is the reason behind gold’s weaker tone this morning.

With the dollar stronger, most of the other major currencies we follow are weaker: sterling (1.3013), the euro (1.1582), the Australian dollar (0.7362), while the yen is consolidating at 111.67.

The yuan has weakened further and was recently quoted at 6.8734 – the low last December was 6.9633. The other emerging market currencies we follow are also looking weaker this morning, with the Asian currencies in low ground, while the real and peso are consolidating at levels further away from recent lows.

The economic agenda is busy again today, with China’s Caixin services purchasing managers’ index (PMI) falling to 52.8 from 53.9. Later, we have France’s government budget balance, services PMI data from Spain, Germany, Italy, France, United Kingdom, European Union and the US. Other data of note includes Italian industrial production, Italian and EU retail sales as well as the US employment report and trade balance.

Base metals prices had pushed off recent lows in late July, but prices are under pressure again after continuing and escalating trade war rhetoric has zapped traders and business confidence. Even strikes in South America have failed to lift copper prices.

The precious metals have also been negatively affected by the same factor hitting the base metals, especially with the dollar strengthening again. If broader markets start to follow the metals’ lead, then there may be a pick-up in demand for safe havens and at these prices levels, gold may look a well-priced safe haven. Fund short positions are large, so short-covering could become a bullish factor before too long, especially if the US Federal Reserve were to become less hawkish as a result of the likely contagion from a trade war.