METALS MORNING VIEW 09/01: Metals prices buoyant on US/China trade hopes, but markets still vulnerable until specifics emerge
Three-month base metals prices on the London Metal Exchange were stronger across the board by an average of 0.6% this morning, Wednesday January 9.
Tin led the way with a 1% gain and is back over $20,000 per tonne and has an impressive double bottom in place on the chart, with lows in August and November. Lead, zinc and aluminium were all up by around 0.8%, copper was up by 0.4% at $5,959 per tonne and nickel lagged with a 0.1% gain.
Volume across the complex has been above average with 7,296 lots traded as at 6.52am London time.
Precious metals prices were mixed; bullion prices were lower, with gold down by 0.2% at $1,282.29 per oz and silver off by 0.5% at $15.59, while palladium and platinum were up by an average of 0.4%.
Base metals were also stronger across the board on the Shanghai Futures Exchange with gains averaging 0.6% – led by a 1.3% gain in the February zinc contract. The February copper contract was up 0.5% at 47,620 yuan ($6,946 per) tonne.
Spot copper prices in Changjiang were up by 0.3% at 47,500-47,670 yuan per tonne and the LME/Shanghai copper arbitrage ratio has slipped to 7.99 from 8.02 on Tuesday.
In other metals in China, the May iron ore contract on the Dalian Commodity Exchange was off by 0.6% at 509.50 yuan per tonne. On the SHFE, the May steel rebar contract was up by 0.5%.
In wider markets, the spot Brent crude oil price was firmer, up by 1.23% at $59.45 per barrel. The yield on US 10-year treasuries has continued to strengthen, it was recently quoted at 2.7279%. The yields on the US 2-year and 5-year treasuries remain inverted at 2.5825% and 2.5757% respectively. The German 10-year bund yield was also firmer at 0.2380%. The firmer yields support a more risk-on stance in the financial markets, which is reflected by stronger equity markets too.
Asian equity markets were upbeat on Wednesday: the Nikkei (1.10%), Hang Seng (2.01%), the CSI 300 (1.01%), Kospi (1.95%) and the Australian ASX 200 (0.98%).
This morning’s performance follows a stronger performance in western markets on Tuesday; in the United States, the Dow Jones Industrial Average closed up by 1.09% at 23,787.45, while in Europe, the Euro Stoxx 50 was up by 0.70% at 3,054.94.
The dollar index’s attempt to rebound on Tuesday stalled and it was recently quoted at 95.74, the low this year being 95.62. The yen (108.95) continues to weaken, which we see as a sign of haven demand unwinding. Sterling (1.2742) and the euro (1.1467) are holding below recent highs but uncertainty surrounding Brexit – Britain’s exit from the European Union – is expected to cap those, while the Australian dollar (0.7158) is firmer.
The yuan was also firmer at 6.8351, which suggests some confidence is emerging, while the other emerging market currencies we follow are for the most part stronger, the exception is the Indian rupee that is weaker.
Economic data already out on Wednesday shows firmer Japanese average cash earnings, which climbed 2%, after a previous rise of 1.5%, while Germany’s trade balance climbed to a surplus of €19 billion ($21.7 billion) from €17.3 billion previously. Data out later includes Italian and EU unemployment rates and US crude oil inventories. In addition, there are numerous central bank events with Federal Open Market Committee (FOMC) members Charles Evans and Eric Rosengren and Bank of England’s governor Mark Carney speaking and the FOMC meeting minutes are to be releases at 7pm London time.
Positive noise out of the US/China trade talks are providing a boost to the base metals and broader markets too, which is all helping sentiment. But until a deal is set in concrete the market will be vulnerable, as disappointment could only be a presidential tweet away.
China is also planning to announce new incentives to boost domestic consumption that are said to be aimed at consumer consumption including auto and home appliance sales – both of which would be bullish for metal demand. Given oversold metal prices, optimism could spark a short-covering rally, but to get the downstream supply chain to restock is likely to require evidence that a trade deal is in place. In addition to the optimism over trade, the US Federal Reserve chairman’s recent dovish stance has also lent support.
Not surprisingly, with more optimism in the broader markets gold prices are struggling to hold on to their recent gains and silver is following. The more industrial precious metals are faring better, albeit polarized with palladium at record highs, while platinum is climbing out of low ground.