METALS MORNING VIEW 04/12: Mixed start to the week after Friday’s rebounds

Volume has been average with 7,406 lots traded as of 06.47 am London time.

This follows a generally bullish performance on Friday – the exception was tin where prices dropped 1%, while the rest were significantly stronger with average gains of 1.8%.

Gold, silver and platinum prices are down by an average of 0.4% this morning, with gold prices at $1,274.40 per oz, while palladium prices buck the trend with a 0.3% gain and it appears that prices are now getting comfortable above the $1,000-per-oz level. On Friday, palladium prices climbed by 0.9%, gold prices were up by 0.4%, while silver and platinum prices were off by 0.2% and 0.1% respectively.

On the Shanghai Futures Exchange today, aluminium prices are down by 0.3%, while the rest are firmer with average gains of 1.6%. Lead is the outperformer with a gain of 2.6%, while copper prices are up by 1.2% at 53,510 yuan ($8,085) per tonne. Spot copper prices in Changjiang are up by 1.2% at 53,340-53,470 yuan per tonne and the LME/Shanghai copper arbitrage ratio is at 7.80, compared with 7.81 on Friday.

Last week, noting the strength in iron ore and steel rebar prices in China, we thought the easier tone in base metals would be short-lived and that seems to have turned out to be the case and with the steel complex prices up further, this bodes well for metals prices in general. Iron ore prices in China today are up by a hefty 5.1% at 549.50 yuan per tonne on the Dalian Commodity Exchange. On the SHFE, steel rebar prices are up by 2.3%, while gold and silver prices are off by 0.3% and 0.4% respectively.

In international markets, spot Brent crude oil prices are down by 0.32% at $63.41 per barrel. The yield on US ten-year treasuries are slightly weaker at 2.40% and the German ten-year bund yield has also eased to 0.33%.

Equities in Asia this morning are mixed: the Nikkei is down by 0.49%, the ASX 200 is weaker by 0.07%, while the Kospi is up by 1.06%, the Hang Seng is stronger by 0.59% and the CSI is up by 0.43%. This follows weakness in western markets on Friday where in the United States the Dow Jones closed down by 0.17% at 24,231.59 and in Europe where the Euro Stoxx 50 closed down by 0.56% at 3,527.55. Premarket European and US markets are firmer following the US Senate’s passing of the tax reform legislation.

The dollar index avoided breaking below 92.50 on Friday – our line in the sand – with a low of 92.60. It has since rebounded to 93.31 on the back of the progress made on the tax reform legislation. With the dollar stronger, the euro at 1.1845 has turned lower, as have sterling at 1.3426 and the yen at 113.00, while the Australian dollar at 0.7587 is little changed.

The yuan at 6.6197 is also weaker, while the other emerging currencies we follow are mixed, with the peso, rupiah and rand weaker, while rupee and ringgit are firmer, especially the latter.

Today’s economic agenda shows Japan’s consumer confidence edged higher to 44.9, from 44.50, data out later includes Spanish unemployment change, EU Sentix investor confidence, UK construction purchasing managers’ index (PMI), EU producer price index (PPI) and US factory orders. There is also a Eurogroup meeting.

We viewed the recent weakness in most of the base metals as being consolidation as profit-taking took hold ahead of November’s month end, the exception has been nickel, which we are less bullish on. Friday saw some price rebounds and so far this morning is looking mixed. However, strong equity markets may well boost investor confidence, especially as generally good PMI data out last week looked constructive. Overall we remain quietly bullish for most of the metals and expect range trading, so would not be surprised to see metals prices rebound further off recent lows.

Gold, silver and platinum prices are looking week – the strong equity markets and minimal geopolitical concerns over North Korea, seem to be weighing on the precious metals prices, although palladium continues to buck the trend on the back of strong fundamentals.

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