METALS MORNING VIEW 09/07: Metals prices rebound after risk-on emerges in markets

Some strength emerged in the three-month base metals prices on the London Metal Exchange on the morning of Monday July 9, with all of the metals posting gains that averaged 1% as at 7.06am London time.

Volume has been above average with 10,063 lots traded.

This follows a mixed performance on Friday, when nickel, lead, tin and copper prices dropped, while aluminium and zinc prices rallied. A large underlying tail was, however, established on copper and other ‘doji’ shaped candlesticks formed on many of the other metals’ charts, suggesting possible turnarounds in sentiment.

The precious metals prices were up by an average of 0.9% this morning, with spot gold prices up by 0.5% at $1,260.19 per oz. This follows weakness in spot gold and silver prices on Friday, while the platinum group metals closed higher.

In China, the base metals were up across the board with gains averaging 0.9%, led by a 1.7% rebound in the most-traded August zinc price, while August copper prices were up by 1.5% at 50,000 yuan ($7,526) per tonne.

In China, the base metals were broadly up with gains averaging 0.9%, led by a 1.7% rebound in the most-traded August zinc price, while August copper prices were up by 1.5% at 50,000 yuan ($7,526) per tonne.

Spot copper prices in Changjiang were up by 1.2% at 49,450-49,650 yuan per tonne and the LME/Shanghai copper arbitrage ratio was at 7.78.

In wider markets, spot Brent crude oil prices were up by 0.65% at $77.60 per barrel this morning. The yield on US 10-year treasuries, recently quoted at 2.8381%, continued to weaken, as did the German 10-year bund yield at 0.3000%.

Asian equity markets were firmer on Monday: Nikkei (+1.21%), Hang Seng (+1.65%), CSI 300 (+2.40%), the Kospi (+0.69%) and the ASX200 (+0.22%). This follows a stronger performance in western markets on Friday, where in the United States the Dow Jones closed up by 0.41% at 24,456.48, and in Europe where the Euro Stoxx 50 closed up by 0.22% at 3,448.49.

The dollar index at 93.82 is continuing to weaken after establishing a double high at 95.54 (June 21 and 28). The pullback in the dollar and in US treasury yields no doubt helping to underpin the rebound in gold prices. Most of the major currencies are also seeing some strength emerge while the dollar retreats: euro (1.1772), sterling (1.3318) and the Australian dollar (0.7468), while the yen is consolidating (110.44).

The yuan is also firmer at 6.6205, as are the emerging market currencies we follow, which combined with the firmer metals and equity prices, suggests risk-on.

Economic data already out this morning shows Japan’s bank lending rose by 2.2%, having previously been up by 2%, the economy watchers sentiment climbed to 48.1 from 47.1 and the current account at 1.85 trillion yen, was below the previous level of 1.89 trillion yen. Germany’s trade balance, at €20.3 billion ($23.8 billion), was up from €19 billion previously. Data out later includes the European Union’s Sentix investor confidence and US consumer credit. There are also speeches from UK Monetary Policy Committee member Ben Broadbent and European Central Bank president Mario Draghi.

The stronger tone in base metals’ prices this morning bodes well after the weakness seen in recent weeks. There are also various chart formations that support the view that the recent bout of price weakness may have run its course. Given rises in equities and a weaker dollar, the risk-on developments also look broad based. Key now will be to see how much follow-through buying/bargain hunting there is.

The precious metals are seeing some follow through strength after their recent weakness – the combination of weaker US treasury yields and the weaker dollar, are reducing the opportunity cost of holding gold.