METALS MORNING VIEW 11/12: Base metals find support again, but upside likely to be capped

Three-month base metals prices on the London Metal Exchange were for the most part firmer this morning, Tuesday December 11, with average gains of 0.2%. This after they again tested support levels on Monday, when support held to varying degrees.

Copper led on the upside this morning with a 0.6% gain to $6,133 per tonne, while aluminium dipped 0.1% to $1,945 per tonne. Volume across the complex has been average, with 4,955 lots traded as at 7.29am London time.

Gold remains firm, with prices up by 0.3% at $1,247.17 per oz this morning. Silver and palladium prices were consolidating near the highs of recent ranges, while platinum is sitting on its lows.

In China this morning, the base metals prices on the Shanghai Futures Exchange were mainly weaker; the exceptions were copper and tin, with the former’s February contract at 49,070 ($7,105) per tonne, while the rest of the complex are down between 0.1% for the January aluminium contract and 0.7% for the January lead contract.

Spot copper prices in Changjiang were up by 0.1% at 49,210-49,400 yuan per tonne and the LME/Shanghai copper arbitrage ratio was little changed at 8.00.

In other metals in China, the May iron ore contract on the Dalian Commodity Exchange was up by 0.5% at 474.50 yuan per tonne. On the SHFE, the May steel rebar contract was down by 0.4%.

In wider markets, spot Brent crude oil prices were up by 0.39% at $60.11 per barrel. The yield on US 10-year treasuries has started to strengthen and was recently quoted at 2.8692%, but the yield on the US 2-year and 5-year treasuries remain inverted at 2.7364% and 2.7256% respectively. The German 10-year bund yield was firmer too at 0.2600%.

Asian equity markets on Tuesday were mixed: the Nikkei (-0.34%), the Kospi (-0.14%), the ASX 200 (0.42%), the CSI 300 (0.48%) and the Hang Seng (0.19%).

This morning’s performance follows a mixed performance in western markets on Monday; in the United States, the Dow Jones Industrial Average closed up by 0.14% at 24,423.26, while in Europe, the Euro Stoxx 50 was down by 1.36% at 3,016.99.

The dollar index rebounded on Monday and was consolidating this morning. It was recently quoted at 97.10 – the rebound in yields providing support. The other major currencies we follow are mixed: euro (1.1372), the Australian dollar (0.7198), the yen (113.13), while sterling (1.2571) slumped on the back of setbacks in negotiations over Brexit – the United Kingdom’s departure from the European Union.

The yuan is firmer this morning and was recently quoted at 6.8925, helped by some positive headlines that the US and China are continuing trade talks despite tension over the arrest of Huawei’s chief financial officer. Most of the other emerging market currencies we follow are either weaker, or flat, on the back of the firmer dollar.

Key data on the economic agenda today includes: UK employment data, economic sentiment readings from the German-based ZEW think-tank and producer price index readings from the EU and US.

Base metals prices are stuck sideways, with zinc looking the strongest of the complex; copper, lead, aluminium and tin are stuck in mid-ground, while nickel prices remain just off the lows. So for now it is more of the same – although there may be a race on between whether the trade dispute is resolved before the global economic data deteriorates to the extent that it also becomes more of a negative factor.

Gold prices have broken higher and are trending upward again, silver prices are trying to follow but seem to be struggling, while platinum prices are trending lower and palladium prices are consolidating below recent record highs. The run-up in gold reflects the markets concerns about weakness in other broader markets, so if you are bullish on gold now, it may be a case of “be careful for what you wish for”.

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