METALS MORNING VIEW 08/10: Metals off to a weak start to LME Week

Three-month base metals prices on the London Metal Exchange were for the most part weaker during morning trading on Monday October 8.

The exception was copper, whose price was up by 0.2% at $6,198 per tonne, while the rest of the complex was down by an average of 1.1%

Although the Chinese market has reopened after the Golden Week holiday, volume has remained light with 3,361 lots traded as of 6:50am London time. The fact London Metals Week has followed Golden Week has kept the market volume thin.

This follows another mixed performance on Friday, when copper, aluminium and lead prices closed lower, by an average of 1.4%, although that was skewed by a 3.1% fall in aluminium prices, while the rest were up by an average of 0.4%.

In the precious metals this morning, spot gold and silver prices were down by 0.6% and 1% respectively, with gold at $1,196.10 per oz, and the platinum group metals were down either side of 0.3%.

The base metals on the Shanghai Futures Exchange are split into two camps, with the November contracts for copper, aluminium, lead and zinc up by an average of 0.6%, while November nickel and January tin prices are down either side of 0.6%. November copper was recently quoted at 49,960 yuan ($7,240) per tonne.

In wider markets, spot Brent crude oil prices were off by 0.71% at $83.43 per barrel. The yield on US 10-year treasuries has pushed higher to 3.2290%, as has the German 10-year bund yield that was recently quoted at 0.5600%.

The rise in US yields seems to be weighing on Asian equity markets that were down across the board on Monday: Nikkei (-0.80%), Kopsi (-0.60%), Hang Seng (-0.87%), CSI 300 (-3.83%) and ASX200 (-1.38%). This follows a weaker performance in western markets on Friday: in the United States, the Dow Jones closed down by 0.68% at 26,447.05, while in Europe, the Euro Stoxx 50 was down by 0.88% at 3,345.51.

The dollar index is consolidating last week’s gains and was recently quoted at 95.80 but is looking strong overall.

With the dollar consolidating, the other major currencies are consolidating too, albeit generally after recent weakness: the euro is at 1.1501, sterling is at 1.3087, while the yen was recently at 113.83 and the Australian dollar is at 0.7053.

The yuan has weakened to 6.9000, having been quoted at 6.8679 before the holiday. The emerging currencies we follow were for the most part weaker, led by the rupiah and ringgit although the Brazilian Real is rebounding. The weakness in the emerging market currencies suggests the markets are taking risk off the table.

Data out already in China showed the Caixin services purchasing managers index climbed to 53.1 from 51.5 and German industrial production fell 0.3%, but that was up from the previous reading of -1.3%. Data out later includes German Sentix confidence. There is no US data today.

Aluminium prices are correcting having run up last week on the news that Alunorte’s alumina refinery would be shut, but a decision to run it at 50% capacity has provided some relief. The other base metals are under pressure, or consolidating, because the recent show of strength phase failed to attract follow through buying. For now the risk off in Asia and in emerging currencies, combined with continuing uncertainty over US trade, are smothering any bullishness. We wait to see if sentiment changes as LME Week gets under way.

The precious metals are following the base metals in that they are either consolidating or giving back recent gains. We see most of the metals in the same boat at present, the exception is palladium that is reacting to tight fundamentals.