METALS MORNING VIEW 13/12: Metals prices firmer after further trade progress

It was another firmer start for the three-month base metals prices on the London Metal Exchange this morning, Thursday December 13, with all the metals in positive territory and showing average gains of 0.6%.

More positive steps from China on trade seems to be easing some of the concerns in the market, although the traders are probably nervous that any positivity could be unwound with one presidential tweet.

The three-month zinc price led the way with a gain of 1%. This was followed by a 0.9% in nickel, while copper was up by 0.7% at $6,193 per tonne. The rest of the complex was up between 0.2% for tin and 0.6% for lead.

Volume across the complex has been average with 5,467 lots traded as at 7.35am London time.

The precious metals were also firmer with average gains of 0.3%; gold was unchanged at $1,246 per oz, palladium was recently up by 0.3% at $1,264 per oz – this after setting a fresh record high at $1,268 per oz on Wednesday, while silver was making some upward progress at $14.77 per oz and platinum has started to rebound. A weaker dollar is no doubt helping.

In China this morning, the base metals prices on the Shanghai Futures Exchange were mixed with the February zinc and January lead contracts lower by 0.7% and 0.2% respectively, while the rest were up by between 0.1% for February aluminium and 0.3% for both May nickel and tin. February copper prices were up by 0.2% at 49,340 yuan ($7,163) per tonne.

Spot copper prices in Changjiang were little changed at 49,180-49,410 yuan per tonne and the LME/Shanghai copper arbitrage ratio was unchanged at 7.97.

In other metals in China, the May iron ore contract on the Dalian Commodity Exchange was up by 0.4% at 478.50 yuan per tonne. On the SHFE, the May steel rebar contract was up by 2.1%.

In wider markets, spot Brent crude oil prices were up by 0.44% at $60.45 per barrel. The yield on US 10-year treasuries continues to rebound and was recently quoted at 2.9098%, but the yields on the US 2-year and 5-year treasuries remain inverted at 2.7702% and 2.7668% respectively. The German 10-year bund yield was firmer too at 0.2860%.

Asian equity markets were showing strength on Thursday: the Nikkei (0.99%), the Kospi (0.62%), the ASX 200 (0.14%), the CSI 300 (1.55%) and the Hang Seng (1.28%).

This morning’s performance follows a stronger performance in western markets on Wednesday; in the United States, the Dow Jones Industrial Average closed up by 0.64% at 24,527.27, while in Europe, the Euro Stoxx 50 was up by 1.72% at 3,107.97.

The dollar index rebounded on Monday and pushed even higher on Tuesday to reach 97.55, which was just below this year’s high of 97.70, but it has since started to slip and was recently quoted at 96.96 – this despite the firmer treasury yields.

The other major currencies we follow were mixed; the euro and the Australian dollar were firmer at 1.1383 and 0.7244 respectively and the yen was weaker at 113.42. Sterling has rebounded to 1.2655, after UK Prime Minister Theresa May won a no-confidence vote – this after Wednesday’s low of 1.2477.

The yuan was also firmer this morning and was recently quoted at 6.8685, helped by some positive steps in US/China trade talks. In addition to China’s decision to cut tariffs on imported US cars to 15%, from 40%, Canada granting bail to Huawei’s chief financial officer Meng Wanzhou, China has also resumed buying US soya beans. The emerging currencies we follow are for the most part firmer, which suggests a slight shift to risk-on.

Data out already today showed China’s foreign direct investment fall 1.3%, having previously climbed 3.3%. This was the first negative reading for 14 months, the previous switch from positive to negative was in February 2017. German and French consumer price index (CPI) data came in unchanged from previous readings of 0.1% and -0.2% respectively. Later, there is an European Central Bank (ECB) refinancing rate decision and press conference while US releases include import prices, initial jobless claims, Federal budget balance and natural gas storage.

The base metals for the most part remain rangebound, the exception being tin that is rallying strongly again. Although the metals prices are firmer following some improvement in the trade situation, without a new signed and sealed trade agreement, the market remains nervous and rightly so given how erratic US President Donald Trump can be.

We think there is considerable pent-up demand for the metals, but it may take more reassurance before purchasing managers get more confident. There seems to be a feeling that the markets are slowing down for year-end, but if confidence does pick up at a time of low liquidity then that could lead to some fast market moves.

Gold’s rebound has paused in recent high ground, but for now it still looks well placed to continue higher, while silver and platinum are rising too. But if yields continue to rebound and broader market tensions ease, then that could increase the headwinds against gold.

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