METALS MORNING VIEW 07/07: Aluminium prices trying higher, rest consolidate

Consolidation has set in across most of the base metals traded on the London Metal Exchange this morning, Friday July 7, with three-month prices down an average of 0.3%. The exception is nickel where prices are under more pressure – off 0.7% at $9,035 per tonne. Copper prices are off 0.1% at $5,840 per tonne. Volume has been light with 2,997 lots traded as of 06:13 BST.

This comes after a general up day on Thursday that saw gains in aluminium, lead and tin, averaging 0.6%, while nickel dropped 0.4% and copper and zinc were little changed.

Gold and platinum prices are down 0.4% this morning, with spot gold prices at $1,220.30 per oz, silver prices are down 1.2% (in early trading it appears silver suffered a flash-crash down below $15 per oz, but only for seconds, the fact it rebounded suggests it may have been a trading error). Palladium prices are up 0.2%. Rising bond yields seem to be driving bullion prices, while geopolitical concerns over North Korea are not yet showing themselves.

Today’s weaker tone comes after a generally weaker day on Thursday, when gold prices dropped 0.2%, palladium prices dropped 0.6% and silver and platinum prices were little changed.

In Asia this morning, the base metals on the Shanghai Futures Exchange (SHFE) are mixed. Lead prices are up 1.2%, zinc prices are up 0.5% and copper prices are up 0.1% at 46,880 yuan ($6,893) per tonne, while on the downside, nickel leads with a 0.9% drop, aluminium prices are off 0.3% and tin prices are down 0.1%. Spot copper prices in Changjiang are off 0.1% at 46,680-46,800 yuan per tonne and the LME/Shanghai copper arb ratio has firmed to 8.03.

September iron ore prices on the Dalian Commodity Exchange are up 2.1% at 476 yuan per tonne. On the SHFE, steel rebar prices are up 0.1%, gold prices are down 0.1% and silver prices are off 0.6%.

In international markets, spot Brent crude oil prices are down 1% at $47.51 per barrel and the yield on the US ten-year treasuries is higher at 2.38%, the German ten-year bund is at 0.56%.

Rising bond yields were worrying the equity markets on Thursday with the Euro Stoxx 50 closing down 0.5% and the Dow closed off 0.7% at 21,320.04. The worry has flowed through to Asia this morning, where the ASX 200 is down 0.8%, Kospi is down 0.6%, the Nikkei and CSI 300 are off 0.4% and the Hang Seng is off 0.3%. Key now will be whether the bond rout continues and whether that ends up prompting broader risk-off move across other markets.

The dollar index, at 95.96 is weaker, this despite firmer bond yields. Conversely, the euro has rebounded to 1.1415, sterling is treading water at 1.2960, the yen is weaker at 113.73 and the Australian dollar at 0.7587 is little changed, but looking weaker.

The yuan, at 6.8014, remains weak, the rand at 13.4624 is weakening again, while the other emerging market currencies we follow are generally flat.

It is a busy day for economic data, with the highlights being the US employment report and G20 meeting – data out already showed better than expected Japanese leading indicators and German industrial production. Data out later includes French industrial production, government budget balance and trade balance, UK house prices, manufacturing and industrial production, goods trade balance and GDP estimates, while in addition to the US employment report there is data on natural gas storage and a US Federal Reserve monetary policy report.

Copper and nickel prices are looking the weaker ones in the LME complex this week, but the weakness seems to be part of an effort to consolidate, which most of the other metals are also doing. The exception is aluminium, where prices are pushing higher towards former resistance levels that are bunched together in the $1,960-1980 per tonne area. While the metals consolidate, direction may come from the broader markets – for now geopolitical concerns are surprisingly having little effect on markets, but a correction in the massive bond markets does seem to be having an impact and that has potential to trigger a bigger risk-off move.

Gold prices are under pressure, as are silver and platinum prices, while palladium prices continue to correct after the sharp May-June rally. With the precious metals looking vulnerable on the back of stronger bond yields much will depend on whether investors start to want switch more into havens – this could happen either on a pick-up in geopolitical concerns over North Korea, or if they get more worried about risk off in broader markets.

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

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