METALS MORNING VIEW 15/09: Metals in correction mode, but some dip buying evident

Volume has been slightly above average with 7,530 lots traded as of 06:23 BST. A quick glance at the charts suggests the market is still in correction mode although some consolidation is starting to be seen in some of the metals.

This follows a generally weaker day on Thursday, when the complex closed down an average of 0.5%, with nickel leading on the downside with a 1.9% drop, while lead bucked the trend with a 1.2% rise, mainly on the back of strength in China.

Precious metals are for the most part weaker this morning, with the complex off by an average of 0.2%, led by 0.3% declines in gold and platinum prices, with spot gold at $1,329.26 per oz. Palladium is firmer by 0.1% at $928.30 per oz. This follows a mixed performance on Thursday when gold, silver and platinum were up an average of 0.6%, while palladium prices dropped 1.1%.

On the Shanghai Futures Exchange (SHFE) this morning, lead prices are up 0.8% – environmental inspections continue to affect supply, while the rest of the base metals are down an average of 1%, led by a 2.3% drop in nickel prices, while zinc is off just 0.1%. Copper prices are down 0.6% at 50,270 yuan ($7,672) per tonne. Spot copper prices in Changjiang are down 0.3% at 50,330-50,570 yuan per tonne and the London/Shanghai copper arb ratio has rebounded to 7.74.

Steel rebar prices on the SHFE are down 1.8%, while iron ore prices for January delivery on the Dalian Commodity Exchange are down 2.5% at 511 yuan per tonne. Back on the SHFE, gold and silver prices are up 0.6% and 0.3%, respectively.

In international markets, spot Brent crude oil prices are little changed at $55.26 per barrel and the yield on US ten-year treasuries has firmed to 2.18%, while the German ten-year bund yield has climbed to 0.41%.

Asian equities this morning are for the most part upbeat despite further threats from North Korea on Thursday and another missile test this morning. Gains have been seen in the Kospi (+0.2%), the Nikkei (+0.6%), the Hang Seng (+0.1%), the CSI 300 (+0.1%), while the ASX 200 is down 0.7%. On Thursday, US markets were stronger with the Dow closing up 0.2% at 22,203.48 and setting a fresh record high intraday, while in Europe, the Euro Stoxx 50 climbed 0.1% to 3,526.48.

The dollar index’s rebound has halted for now – at 92.08, the index is below Thursday’s rebound high of 92.66. Sterling is pushing higher at 1.3411, the euro is consolidating at 1.1919, the recent high being 1.2092, the yen is weaker at 110.41 and the Australian dollar at 0.8001 is consolidating in high ground. We are still waiting to see if spikes in the dollar and currencies on September 8 were a turning point and whether the dollar will continue to go higher, which could be a headwind for metals, or is the recent strength in the dollar just a mini-countertrend move?

The Chinese yuan has been weakening since September 8 – it was recently quoted at 6.5456, the recent peak being 6.4345. The other emerging market currencies have become more choppy, but not too directional.

Data out today includes the EU trade balance, UK quarterly bulletin from the Bank of England and the CB leading index as well as US data including Empire State manufacturing index, industrial production, capacity utilisation, preliminary University of Michigan consumer sentiment and inflation expectations and business inventories.

The corrections in the LME base metals prices continue for the most part, although some underlying tails on recent chart candlesticks suggest some dip buying. For now we would let these corrections run their courses, but given a general back drop of better economic data and an image of concerted global growth, albeit slow, we would be on the lookout for bases to build and for that to provide another buying opportunity. With the dollar still attempting a rebound any rebound in base metals prices may be delayed, or laboured.

Gold prices found support on Thursday at the 20-day moving average and prices closed on the day’s high, which bodes well. Given another escalation in the North Korean rhetoric along with another missile test that flew over Japan, it is not surprising that gold prices have turned higher. The rest of the precious metals are consolidating after recent weakness, but they are not showing the strength being seen in gold.

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