METALS MORNING VIEW 09/08: US/NK tensions fail to dampen metals sentiment

The base metals traded on the London Metal Exchange were up a net 0.3% as of 06:47 BST, even while data showed Chinese CPI inflation rose 1.4% in July, slightly below forecast. Precious metals prices are slightly firmer, up a net 0.3%, although prices have failed to see a significant safe-haven response to the rising tensions between the USA and North Korea.

North Korea is considering carrying out pre-emptive missile strikes on the US Pacific island of Guam designed “to send a serious warning signal to the US”. The North Korean comments were published after US President Donald Trump warned Pyongyang that if it continued to threaten the USA, it would “face fire and fury like the world has never seen”.

Overnight, copper prices tested $6,500 per tonne for the first time since December 2014, while aluminium and nickel are consolidating strong gains yesterday which saw the light-weight metal gain 2.8%, closing above $2,000 per tonne for the first time since late 2014 after Chinese authorities in the Shandong province ordered the closure of 3.21 million tonnes of smelting capacity. Nickel surged 3.5% to a five-month high yesterday while tin bucked the trend, closing down 1.3%.

Equities are under slight selling pressure this morning, adding to the soft close to US market. The Nikkei 225 was down 1.3% at the time of writing while the CSI 300 was marginally lower (-0.1%).

In other markets, oil prices continue to act as a drag; Nymex crude is under pressure for a third day amid fresh doubts production cuts promised by Opec members will be enough to rebalance the market. The dollar index currently stands at 93.55, although still above its recent low of 92.84 on August 3. The Japanese yen has found some safe-haven bids.

The macroeconomic agenda is relatively light today. Economic data released earlier this morning in Asia showed Japanese machine tool orders, a leading indicator of production – slowed to 26.3% in July from 31.1% in June. Canadian housing figures could lend direction later today, as could wholesale inventories from the USA, while energy price will be looking to US crude oil inventories.

Looking ahead, recent fundamental developments should continue to provide price support to the base metals, as should broadly positive economic data. But the soft tone in equities and rising geopolitical tension could be enough to limit further gains, at least in the very short term, as an element of profit-taking is unsurprising given the scale of recent gains.

Precious metals prices may continue to push higher in the days ahead if USA/North Korea tensions escalate, renewing interest in safe-haven assets. There could be an additional lift from a weaker dollar while the dollar index approaches key technical support. For now, though, we still favour the PGMs (especially palladium) over gold and silver.

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