METALS MORNING VIEW 07/04: Base metals remain on a back footing after Thursday’s selling

Given the geopolitical developments with the USA attacking a Syrian air base, base metals prices have been little affected, although precious metals are up, while in China, iron ore and steel prices have fallen heavily.

Base metals prices on the London Metal Exchange this morning, Friday April 7, are up an average of 0.1%, with three-month copper prices off 0.1% at $5,872 per tonne and tin prices are off 0.2%, while the rest of the metals are ranged from little changed on nickel to up 0.3% for aluminium and lead prices. Volume has been above average with 5,980 lots. On balance, prices are consolidating after selling emerged on Thursday afternoon that was thought to be driven by Chinese fund selling.

Gold prices jumped 1.4% this morning to a high of $1,269.40 per oz, setting a fresh high for the year. As of 06:28 BST the precious metals were up between 0.7% for palladium prices and 1% for gold prices, with silver and platinum prices up 0.9%. This morning’s gains came after a down day on Thursday, when the complex closed down an average of 0.4%.

In Shanghai this morning, base metals prices are for the most part weaker, tin prices are bucking the trend with a 0.7% gain, while the rest are down an average of 1.3% ranged between a 0.5% fall in aluminium prices and a 1.9% drop in zinc prices. Copper prices are off 0.7% at 47,620 yuan per tonne. Spot copper prices in Changjiang are off 0.2% at 47,420-47,670 yuan per tonne and the LME/Shanghai copper arb ratio has eased to 8.12.

In other metals in China, September iron ore futures have plunged, prices are down 7.1% on the Dalian Commodity Exchange, while on the SHFE, steel rebar prices are down 5.1% and gold and silver prices are up around 1.3%. In international markets, spot Brent crude oil prices are up 1.4% at $55.63 per barrel and the yield on the US ten-year treasuries are around 2.31%.

Equities were firmer on Thursday with the Euro Stoxx 50 up 0.5% and the Dow closed up around 0.1%. Equities in Asia this morning are generally firmer too, which is surprising given the geopolitical developments. The Nikkei is up 0.8%, the Hang Seng is down 0.5%, the ASX 200 is up 0.1%, the CSI 300 is up 0.3% and the Kospi is off 0.2%.

The dollar index rallied on Thursday, but it has slipped today to 100.61. The yen has strengthened to 110.47, while the euro and sterling are little changed and the Australian dollar is falling, it was recently quoted at 0.7523, no doubt weakened by the rapid fall in iron ore prices. In emerging markets, the yuan is weaker at 6.8940 and most other emerging market currencies are either flat, or weaker, with the exception of the rupee that has strengthened further to 64.407.

It is a key day for economic data with the focus on the US monthly employment report. Data out already, includes Japan’s average cash earnings, leading indicators, German industrial production and trade balance, see table below for more details. Data out later includes French industrial production, Italian retail sales, UK manufacturing and industrial production, construction output and in addition to the US employment report, there is also US data out on wholesale inventories and consumer credit. Additionally, Bank of England governor Mark Carney and US Federal Open Market Committee member William Dudley are speaking.

The firmer tone in the base metals that was seen on Tuesday and Wednesday attracted selling on Thursday afternoon that hit all the markets, but particularly nickel and zinc. One of the features of the base metals markets in recent months has been that the upside has been capped and that seems to remain the case. The other feature has been that dips have been supported and that now looks set to be tested again, especially in lead and zinc - indeed lead prices are already dropping through some support levels. With the pick-up in geopolitical tension and with the US employment report being released this afternoon, we expect choppy trading today.

Gold prices got a haven boost overnight, which set fresh highs for the year, we should now get an update on how bullish sentiment is to see if there is follow-through buying. On balance, we would not be surprised if the market struggles to hold on to these gains, but we would expect dips to remain well supported.

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