METALS MORNING VIEW 07/08: Metals prices generally firmer

Following a lackluster start to the trading week, the three-month base metals prices on the London Metal Exchange were mostly stronger on the morning of Tuesday August 7 amid bouts of bargain hunting, with the complex up by an average of 0.3%.

Aluminium and nickel bucked the general strength, with prices off by 0.4% and 0.3% respectively, but the rest were firmer; copper, nickel and tin were up by 0.6%, while lead outperformed its peers with a gain of 0.8%.

Still, volume has been light with 3,347 lots traded as at 06:39am London time.

Bargain-hunting activity was seen across the precious metals too this morning, with the complex up by an average of 0.4%. Gold and silver prices were up by 0.1% and 0.2% respectively, while platinum and palladium were both up by 0.6%.

In China, base metals prices on the Shanghai Futures Exchange were up by an average of 0.4% this morning, though this was skewed by 2.1% jump in the most-traded November nickel contract to 112,570 yuan ($16,438) per tonne. Tin and lead ticked up by 0.3% and 0.8% respectively, copper and aluminium were unchanged, while zinc slid by 0.6%.

In other metals in China, the SHFE’s October steel rebar contract was up by 1.5% to 4,236 yuan per tonne, while the December silver and gold contracts dipped by 0.4% and 0.2% respectively. Based on its previous close, the September iron ore contract on the Dalian Commodity Exchange was up 3.5% to 502.50 yuan per tonne.

In other markets, spot Brent crude oil prices were firmer this morning, up 0.62% at $74.10 per barrel due to rising geopolitical tensions between the United States and Iran. US 10-year treasuries were weaker at 2.9381%, while the German 10-year bund yield edge mildly higher to 0.3900%.

Asian equity market were generally positive this morning: Nikkei (+0.69%), Topix (+0.76%), Hang Seng (+1.16%) and CSI 300 (+1.95%), while the ASX 200 was off 0.30%. This follows a decent performance in western markets on Monday; in the US the Dow Jones index was up 40 points or (+0.16%) and S&P 500 index gained 10 points (+0.35%).

In currency markets, the dollar index has weakened to 95.24 this morning, down from Monday’s high of 95.53. With the index down 0.12% at the time of writing, it has given the precious metals prices and commodities currencies some room to wiggle higher. The Chinese yuan has firmed to 6.8473 but it is far too early to speculate a change in the prevailing downtrend even though the People Bank of China (PBoC) took steps on August 3 to increase its forwards foreign exchange trading requirements to 20%, which should make it more expensive to short the yuan.

The economic agenda is relatively light today, with data out already in Japan mostly in line with market expectations. Later, there are the German and French trade balances, the United Kingdom’s Halifax house price index and US releases that include Jolts job openings, IBD/TIPP economic optimism and consumer credit.

Despite the lingering trade tensions, selling momentum in the base metals complex has slowed considerably, while the dips are attracting bargain-hunting interest near the August lows.

Falling stocks and growing tightness in certain base metals are encouraging and it suggests that metals prices should recover higher if the positive fundamental backdrop can overcome the negative macroeconomic condition. Mining disruptions in Chile should give LME copper prices that extra support to push higher, while nickel can rely on its bullish micro-dynamics to keep its price elevated.

The more industrial precious metals of platinum and palladium have started to follow the base metals higher, while a weaker dollar should underpin the precious metals complex as a whole, allowing prices to enjoy a short-term relief rally.

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