METALS MORNING VIEW 05/03: Metals prices firmer despite China lowering its growth target

Three-month base metals prices on the London Metal Exchange were up across the board by an average of 0.8% this morning, Tuesday March 5. Volume was well above average with 12,645 lots having changed hands on Select as at 06.30am London time, compared with 6,685 lots at a similar time on Monday.

Nickel led on the upside once again with a 2.2% gain to $13,575 per tonne, having closed on Monday at $13,280 per tonne, and copper was up by 0.9% at $6,467 per tonne, having finished Monday at $6,410.50 per tonne.

Spot precious metals prices were mixed this morning; gold was unchanged at $1,286.90 per oz, silver was up by 0.3% at $15.12 per oz after a close of $15.08 per oz on Monday, platinum was up by 0.3% at $838.30 per oz compared with a previous close of $836 per oz, and palladium was off by 0.5% at $1,522.70 per oz after a close of $1,531 per oz on Monday.

In China, base metals prices on the Shanghai Futures Exchange were for the most part weaker while prices reacted to the generally softer tone across the LME metals on Monday and to continued poor economic data. The exception was nickel, which bucked the weaker trend on the LME on Monday and which was the only base metal on the SHFE to show any gains this morning.

The SHFE May nickel contract was up by 0.7%, while the rest were down by between 0.5% for the April lead contract and 1.5% for the May copper contract – the latter recently at 49,550 yuan ($7,390) per tonne, compared with a close of 50,300 yuan per tonne on Monday.

The spot copper price in Changjiang was up by 0.3% at 49,990-50,230 yuan per tonne this morning, compared with 49,850-50,090 yuan per tonne on Monday, while the London/Shanghai copper arbitrage ratio was weaker at 7.67 after 7.76 at a similar time on Monday. The weaker ratio showing a softer tone in China compared with the LME. Given this is the case, it seems odd that the LME prices are up to the extent they are and in such volume.

In other metals in China, the May iron ore contract on the Dalian Commodity Exchange was down by 1.3% at 623 yuan per tonne, compared with 631 yuan per tonne at the close on Monday. On the SHFE, the May steel rebar contract was off by 0.6% at 3,797 yuan per tonne, compared with 3,821 yuan per tonne at Monday’s close.

In wider markets, the spot Brent crude oil price was down by 0.31% at $65.36 per barrel, compared with $65.57 per barrel at Monday’s close.

The yield on US 10-year treasuries was recently quoted at 2.7254% after 2.7559% at a similar time on Monday. The yields on the US 2-year and 5-year treasuries have inverted again and were recently quoted at 2.5476% and 2.5343% respectively. The German 10-year bund yield was at 0.1700%, after 0.1800% on Monday morning.

Asian equity markets were mixed on Tuesday: Nikkei (-0.44%), Hang Seng (+0.20%), the CSI 300 (+0.58%), the Kospi (-0.52%) and the ASX 200 (-0.29%).

This follows a mixed performance in western markets on Monday; in the United States, the Dow Jones Industrial Average closed down by 0.79% at 25,819.65, and in Europe, the Euro Stoxx 50 closed up by 0.15% at 3,317.12.

The dollar index is climbing again and was recently quoted at 96.79. The stronger dollar has put downward pressure on the other major currencies we follow: the euro (1.1320), sterling (1.3156), the yen (111.92) and the Australian dollar (0.7075).

The yuan is consolidating off recent highs and was recently quoted at 6.7021. Most of the other emerging market currencies we follow are either consolidating, or on a slightly weaker footing as China cuts its growth target to 6-6.5% for 2019, from 6.5% in 2018.

The economic agenda is busy on Tuesday; along with important services purchasing managers index (PMI) releases from China, across Europe and the US, there is also data on retail sales in the European Union and new home sales in the US. Other releases include data on US economic optimism and the Federal budget balance. In addition, US Federal Open Market Committee member Eric Rosengren and Bank of England governor Mark Carney are speaking.

For the most part the rallies in the base metals have halted while economic headwinds and lack of clarity on a US-China trade deal weigh on sentiment. The fact prices have managed to rebound this morning after Monday’s weakness and have done so in the face of China cutting its growth target is a sign of independent strength. Key will be whether prices can hold up at these relatively high levels. The focus on copper is the low level of metal on warrant in the LME warehouse system, but rumors that shorts may deliver metal against their shorts positions is something to watch out for as that could weaken sentiment for a while.

The stronger tone in gold and silver is reversing which may well be a sign that the outlook for the global economy may be about to improve if a trade deal is nearing. Platinum prices are following gold’s lead, while palladium prices are holding up relatively well as they are supported by tight fundamentals.

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