METALS MORNING VIEW 09/05: Some buying emerges into the base metal complex

Base metals prices are weaker again this morning, Tuesday May 9, with prices down an average of 0.2% on the London Metal Exchange.

Tin prices are the only ones in positive territory, with gains of 0.2%, while the rest are down between 0.3% and 0.4%, with three-month copper prices at $5,481 per tonne. Volume has been light with 3,706 lots traded as of 06:20 BST.

This morning’s weakness came after yet another day of weakness on Monday, when prices closed down an average of 0.6%, with concerns about leverage in China weighing on sentiment.

The precious metals are for the most part little changed, with spot gold and silver prices off 0.1%, with gold prices at $1,225.90 per oz, platinum prices are also little changed at $914.70 per oz, while palladium prices are up 0.3% at $808.10 per oz. Monday, saw gold, silver and palladium prices ease, while platinum prices climbed 0.4% to $915.

In Shanghai, copper, aluminium and lead prices on the Shanghai Futures Exchange are weaker by 0.9%, 0.7% and 0.3% respectively, which puts copper at 44,630 yuan per tonne, while nickel and tin prices are up 0.4% and 0.3%, respectively. Zinc is up the most with a 1.3% gain. The LME/Shanghai copper arb ratio is slightly firmer at 8.14. Spot copper prices in Changjiang are down 0.9% at 44,710-44,860 yuan per tonne.

In other metals in China, September iron ore prices remain under pressure with prices down 1.9% at 461 yuan per tonne on the Dalian Commodity Exchange, while on the SHFE, steel rebar prices are up 0.2% and gold and silver prices are little changed.

In international markets, spot Brent crude oil prices are down 0.4% at $49.20 per barrel and the yield on the US ten-year treasuries is firmer at around 2.38%.

In equities on Monday, the Euro Stoxx 50 closed down 0.5%, while the Dow closed little changed at 21,012. In Asia this morning, equities are for the most part weaker with the Nikkei off 0.1%, the CSI 300 is off 0.5%, and the ASX 200 is off 0.6%, while the Hang Seng is up 0.4%.

The dollar index got some lift on Monday and has held on to the gains this morning. At 99.15, the index has bounced off Friday’s lows of 98.54. The euro at 1.0925 has given back some of its recent strength, the sterling is treading water at 1.2951, the yen at 113.34 continues to weaken and the Australian dollar has accelerated lower at 0.7351 – the lowest since January.

In emerging market (EM) currencies, the yuan is weaker at 6.9095, while all the other EM currencies we follow are weaker too – suggesting a possible shift to markets being a bit more risk-off.

Economic data showed Japan’s average cash earnings drop 0.4%, after gains of 0.4%, Germany’s industrial production in March dropped 0.4%, which was better than the 0.6% fall expected, but down from the 2.2% gains seen in February. Later there is data on German trade, the French government budget balance, Italian retail sales and US data includes small business index, job openings, wholesale inventories and IBD/TIPP economic optimism. In addition, US Federal Open Market Committee (FOMC) member Robert Kaplan is speaking – see table below for more details.

The base metals remain under pressure and prices are vulnerable, aluminium has joined nickel and copper in breaking below support, while lead, zinc and tin are holding up better. We would expect bouts of dip-buying into this weakness, as is being seen with nickel, but with continuing concerns about deleveraging in China, prices may still have further to correct. We are not overly bearish on the outlook for global growth and see this weakness as coming from stale long liquidation following the rally when prices ran ahead of the fundamentals during the Trump reflation trade. As such, we would be on the lookout for buying opportunities, but not be in any hurry to buy yet.

The correction in precious metals continues, they seem to be suffering as much from the unwinding of haven buying as they are from the broad-based weakness across commodities. If this weakness spills over into the equity markets, then gold prices may see some haven buying return.

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