METALS MORNING VIEW 11/09: Base metals prices find short-term support amid simmering trade tensions

Three-month base metals prices on the London Metal Exchange were mostly stronger during morning trading on Tuesday September 11.

Zinc and tin led the advance with rises of 0.6%, followed by gains of 0.4% and 0.2% in aluminium and copper respectively. Nickel was largely flat, while lead dropped by 0.4% to $2,010 per tonne. Still, the overall configuration of the LME base metals complex was positive, with an average gain of 0.2%.

Volume was below average, however, with only 3,942 lots having been traded across the complex as at 6.09am London time.

The precious metals were split this morning, with spot gold and spot silver prices down by 0.2% and 0.1% respectively. The more industrial precious metals were stronger, however, with platinum and palladium prices up by 0.5% and 0.3% respectively.

In China, base metals prices on the Shanghai Futures Exchange were mixed. On the downside were the most-traded October lead and zinc contracts with falls of 1.2% and 0.7% respectively, which was enough to offset the gains made by its peers. Nickel was the outperformer of the SHFE complex this morning, with the metal’s most-traded November contract rising 0.7% to 102,510 yuan ($14,942) per tonne. The rest were also up but to lesser extents, with the January tin contract up by 0.5%, the October copper contract up by 0.4% and the October aluminium contract edging 0.2% higher.

Spot copper prices in Changjiang were up by 0.2% at 47,850-47,940 yuan per tonne and the LME/Shanghai copper arbitrage ratio was at 8.13, compared with 8.09 on September 7.

In other metals in China, the January iron ore contract traded on the Dalian Commodity Exchange was down by 0.7% to 494.50 yuan per tonne. On the SHFE, the December gold and silver contracts were both up by 0.1%, while the January steel rebar contract dipped by 2.2% 4,161 yuan per tonne, with the latter retreating amid rising concerns that the Chinese economy has started to cool.

In wider markets, a decent level of bidding was seen in Brent crude oil this morning, with spot prices up by 0.35% at $77.55 per barrel. In bonds, the yield on US 10-year treasuries was firmer this morning at 2.9369%, while the German 10-year bund yield was flat at 0.4027%.

Western equities gave a mixed performance on Monday; in the United States the Dow Jones ended the day down 59 points or 0.23%, while the S&P500 managed to secure a marginal gain of 0.19%. European equities had a better day on Monday, with the Euro Stoxx up by 0.46% to 3,309 by yesterday’s close. Asian equities were broadly firmer this morning, with the Nikkei up by a solid 1.19%, Topix 0.62% higher and the ASX 200 gaining 0.64%. But simmering trade tensions between China and the US remain a cause for concern among investors, keeping buyers on the sidelines in certain markets, which saw the likes of the Hang Seng and CSI 300 decline this morning, with falls of 0.35% and 0.10% respectively.

The dollar index was a touch lower this morning at 95.06 and based on its daily technical configuration, further downside could emerge. An easier dollar should provide broad-based support for base and precious metals alike in the coming days. This has provided some relief for emerging currencies this morning, with the Turkish Lira strengthening to 6.4626.
The major currencies we follow are similarly firmer with the yuan at 6.8651, the Euro at 1.1614, Sterling at 1.3052 and the Australian dollar at 0.7126.

In data today, we have the average earnings index, claimant count change and the unemployment rate from the United Kingdom, as well as the German ZEW economic sentiment. US data of note today includes final wholesale inventories and Jolts job openings.

Despite growing signs of physical tightness across the base metals complex, a negative macroeconomic backdrop continues to trump fundamentals. The upside momentum remains capped, with buyers reluctant to establish their dominance due to the simmering trade tensions between the US and China. Concerns over a fresh set of US tariffs targeting $200 billion worth of Chinese goods, due to come into effect last week, and Chinese authorities’ vows to retaliate against any further tariffs continue to undermine market confidence. As such, global risk sentiment remains clouded by fear and uncertainty.

But so far, these conditions have failed to attract fresh demand for haven assets. Gold has rebounded well from its 2018 low at $1,160 per oz, but has not been able to sustain a move above $1,200 per oz. Meanwhile, silver prices are battling to stay above $14.00 per oz. Still, with gold and silver at these low price levels, investors may well turn to these metals as a relatively cheap haven asset should they need one.

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Shanghai Futures Exchange, base metals prices, precious metals prices

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