METALS MORNING VIEW 08/01: Metal price rebounds pause while market participants await further developments

Three-month base metals prices on the London Metal Exchange were for the most part weaker this morning, Tuesday January 8.

Tin was unchanged, while the rest were down between 0.1% for copper and lead and 0.7% for aluminium, with zinc and nickel off by 0.6% and 0.5% respectively. The three-month copper price was recently quoted at $5,909 per tonne.

Volume across the complex has been average with 5,082 lots traded as at 6.35am London time.

Precious metals prices were also mostly weaker this morning, led by a 0.7% fall in silver. Gold was off by 0.4% at $1,283.62 per oz, while palladium was down by 0.2% and platinum was bucking the trend with a 0.5% gain.

The base metals gave a mixed performance in China this morning; the February copper and zinc contracts on the Shanghai Futures Exchange were up by 0.3% and 0.8% respectively, with the former at 47,410 yuan ($6,914) per tonne, the May nickel and tin contracts were up either side of 0.3%, while the February aluminium and lead contracts were down by 0.6% and 1.2% respectively.

Spot copper prices in Changjiang were down by 0.1% at 47,340-47,520 yuan per tonne and the LME/Shanghai copper arbitrage ratio has edged out to 8.02 from 7.99 on Monday.

In other metals in China, the May iron ore contract on the Dalian Commodity Exchange was up by 0.9% at 514 yuan per tonne. On the SHFE, the May steel rebar contract was up by 0.6%.

In wider markets, the spot Brent crude oil price was weaker, down by 0.32% at $57.49 per barrel. The yield on US 10-year treasuries has continued to strengthen, it was recently quoted at 2.6889%. The yields on the US 2-year and 5-year treasuries remain inverted at 2.5385% and 2.5267% respectively. The German 10-year bund yield was also firmer at 0.2200%. The firmer yields support a more risk-on stance in the financial markets.

Asian equity markets were mixed on Tuesday: the Nikkei (0.82%), Hang Seng (0.08%), the Australian ASX 200 (0.69%) were firmer, while the CSI 300 (-0.24%) and Kospi (-0.58%) were weaker.

The dollar index is rebounding from recent weakness and was recently quoted at 95.86, but the overall trend is lower, suggesting the more dovish tone from the US Federal Reserve is weighing on sentiment. The yen (109.08) continues to weaken, suggesting a shift away from haven assets, while sterling (1.2774), the euro (1.1436) and the Australian dollar (0.7122) are consolidating recent gains.

The yuan was also consolidating at 6.8577, but it is still holding within a firming trend, which suggests some confidence. The other emerging market currencies we follow are also consolidating after recent strength.

Economic data already out on Tuesday shows slightly weaker Japanese consumer confidence with the reading falling to 42.7 in December from 42.9 previously and German industrial production was also weaker, falling 1.9% in November, after a 0.8% decline a month earlier. Later there is data on France’s trade balance, UK house prices and US releases that include the National Federation of Independent Business (NFIB) small business index, job openings data and consumer credit.

The base metals are consolidating after the positive sentiment that prompted stronger performances on January 4, which were driven by a better-than-expected US employment report, a more dovish Federal Reserve and hopes for some positive outcomes in the US/China trade talks. But with prices now consolidating again, it does look like traders want some concrete signs of progress on trade.

The market may also be nervous about US President Donald Trump’s decision to make a prime-time address to the American people this evening.

With gold prices and the yen turning lower, and US treasury yields rising, risk-on does seem to be emerging, although a halt in the dollar’s slide could be weighing on gold prices. Overall, the markets seem to be waiting for further developments over trade.

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