METALS MORNING VIEW 11/08: Profit-taking emerges as US-North Korea sabre rattling mounts

The base metals are under pressure today as escalating geopolitical tensions between the USA and North Korea continue to increase risk aversion, triggering profit-taking after bullish sentiment pushed many of the metals to fresh multi-month highs this week.

The base metals trading on the London Metal Exchange have been led lower by a sharp profit-taking dip in nickel, which stands down over 2% at the time of writing. The rest are off by an average of 0.7%, with lead prices off 1% and copper prices off 0.4% at $6,348 per tonne. Volume has been high with 12,270 lots traded as of 06:45 BST.

By contrast the precious metals remain firm, with gold and silver holding near multi-week highs at $1,285 and $17.05 per oz, respectively, supported by flight-to-safety demand.

On the Shanghai Futures Exchange (SHFE) this morning, copper prices are down by 1%, zinc is down by 1.4% and lead by a deeper 2.1% at the time of writing.

In other metals in China, September iron ore prices on the Dalian Commodity Exchange have given back some recent gains, prices are off 4.5% at 570 yuan per tonne. On the SHFE, steel rebar prices are down 3.2%.

Equities remain under pressure this morning, adding to continued sell-off in the US market, which triggered a 44% jump in the VIX volatility index. The CSI 300 and Hang Seng were down 1.3% and 1.6%, respectively, at the time of writing. Japanese markets are closed for a national holiday.

In other markets oil prices have slipped lower with Nymex crude down 0.7%. The dollar index currently stands at 93.42, although still above its recent low of 92.84 on August 3.

The macroeconomic agenda is busy today and includes French and German CPI inflation figures for July. Inflation data is also expected from the USA and could prove pivotal to market direction as an absence of inflation has led investors to dial back their expectations for monetary tightening by the US Federal Reserve (Fed). Market expectation for the Fed to raise interest rates at the December Federal Open Market Committee (FOMC) meeting stands at 41%, according to the CME Fedwatch. FOMC members Robert Kaplan (Dallas) and Neel Kashkari (Minnesota) are also scheduled to speak today.

For the base metals recent fundamental developments should help to provide underlying support, but considering the scale of recent gains some profit taking/consolidation is likely. For the moment we expect corrections to prove short-lived, but with equity market near lifetime highs there is the risk a much deeper correction could be in the making, which would likely drag the base metals lower.

The precious metals will be sensitive to shifting expectations in Fed monetary policy; particularly if today’s CPI figures fail to reflect the pick-up in inflation currently forecast. Wider risk aversion will likely create some downside pressure, however the metals could find fresh upside momentum if US/North Korea tension escalate, triggering fresh demand for haven assets.

Metal Bulletin publishes live futures reports throughout the day, covering major metals exchanges news and prices.

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