METALS MORNING VIEW 05/07: Metals consolidate, little reaction across markets to raised geopolitical tensions

Base metals prices on the London Metal Exchange are for the most part slightly firmer this morning, Wednesday July 5, with prices up an average of 0.2%.

Zinc leads the way with a 0.4% rise, while tin bucks the trend with a 0.2% fall. Copper prices are up 0.2% at $5,900 per tonne. Volume has been light with 3,712 lots traded as of 06:47 BST. Today’s early trading seems to be around consolidation, following a weak performance on Tuesday when prices dropped an average of 1%.

Gold prices are little changed this morning at $1,225.24 per oz, palladium prices are up 0.4%, while silver prices are up 0.1% and platinum prices are down 0.1%. This follows a slightly firmer day for gold prices on Tuesday with prices closing up 0.2%, silver prices closed down 0.1%, while the PGMs were stronger with gains of around 0.8%.

We are somewhat surprised gold prices have not been more buoyant given the pick-up in tension over North Korea’s latest missile test.

On the Shanghai Futures Exchange (SHFE) the metals are split, with aluminium prices leading on the upside with a 0.7% gain, zinc prices are up 0.5% and copper prices are up 0.1% at 47,260 yuan ($6,953 ) per tonne, while lead leads on the downside with a 1.6% drop, with nickel prices off 0.8% and tin off 0.3%. Spot copper prices in Changjiang are up 0.2% at 46,980-47,180 yuan per tonne and the LME/Shanghai copper arb ratio has firmed to 8.01.

September iron ore prices on the Dalian Commodity Exchange are down 0.2% at 477 yuan per tonne. On the SHFE, steel rebar prices are up 1.3%, gold prices are down 0.1% and silver prices are off 0.3%.

In international markets, spot Brent crude oil prices are down 0.2% at $49.53 per barrel and the yield on the US ten-year treasuries has eased two basis points to 2.33%.

Equity markets gave back some of their recent rebound gains, the Euro Stoxx 50 closed down 0.4%, while the Dow was closed. In Asia this morning, the markets are generally firmer with the Nikkei up 0.2%, the Hang Seng is up 0.6%, the Kospi is up 0.4%, the CSI 300 is up for 0.7%, while the ASX 200 has given back some of its gains from Tuesday with the index down 0.1%. Surprisingly, the markets seem to be ignoring/misjudging the escalation in the North Korean threat.

The dollar index at 96.19 is once again treading water after a fairly sharp, but so far short-lived rebound – the down trend still dominates. The euro is consolidating at 1.1359, sterling at 1.2916 is drifting lower, the Australian dollar is trying to push higher again, while the yen is looking weaker again. With the yen weaker and gold not showing much strength – investors are signalling little angst over North Korea. We feel the combination of the raised threat and a somewhat maverick US president, should be ring a few more alarm bells.

The yuan at 6.7953 is little changed having eased in recent days from relatively strong levels. The slightly weaker trend of late in the other emerging market currencies we follow seem to be consolidating today, suggesting markets may be in wait-and-see mode.

The economic focus is on services purchasing managers’ index (PMI) data today, China’s Caixin reading dropped to 51.6, from 52.8, later there is data out across Europe. In addition, there is data on EU retail sales, US factory orders, US economic optimism and at 7pm BST there is the release of the US Federal Open Market Committee meeting minutes.

The stronger tone in base metals from last week has run out of steam this week, the jump in copper stocks of late has not helped sentiment and there may have been some profit-taking/selling ahead of today’s LME option declaration. We had wondered whether the combination of more hawkish central bank plans and now the pick-up in geopolitical tension would lead to risk-off but that has not happened so far. In the absence of that, then we would not be surprised to see the stronger tone resume in the base metals, but we may have to wait until after option declaration to see whether that is the case.

Gold prices remain under pressure in fairly low ground, silver and platinum are in the same position, while palladium prices still seem to be in correction mode following strong gains of late. The market seems too complacent about North Korea for our liking, so we would not be surprised to see a delayed reaction down the road.

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

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