METALS MORNING VIEW 16/08: Further volatility expected as aluminium, zinc push to new highs

The base metals are in a stronger mood this morning, Wednesday August 16, as markets stabilise following the recent spate of risk aversion created by rising tensions between the USA and North Korea, while a slightly softer tone in the dollar has lent modest support to the precious metals.

The base metals trading on the London Metal Exchange are largely trading in positive ground; aluminium (1.1%) and zinc (1.1%) are testing fresh 2017 highs, while nickel (1.1%) has stabilised after large stock inflows triggered further downside pressure on Tuesday. Tin is the exception, trading in negative territory (-0.1%) as rising Chinese stocks continue to put a cap on nearby price sentiment. At the time of writing the metals were up by an average of 0.7%, while volume has been light with 8,526 lots traded on LME Select as of 06:47 BST.

In the precious metals, gold has stabilised above $1,270 per oz after upbeat retail sales figures from the USA, together with improved risk appetite, triggered a deeper correction from August 11’s closing level of around $1,289. The complex was up by a net 0.2% at the time of writing.

On the Shanghai Futures Exchange (SHFE) this morning, zinc prices are up by 1.9% and aluminium by 2%, although copper, nickel and tin are in negative territory at the time of writing.

In other metals in China, September iron ore prices on the Dalian Commodity Exchange up by a modest 1.2% at 569.5 yuan per tonne while steel rebar futures on the SHFE are down by 0.7%.

Equities have seen a mixed start in Asia, echoing the sentiment in US markets on Tuesday; the Hang Seng was up 0.6%, while the Nikkei and CSI 300 were down by 0.1% and 0.2%, respectively.

In other markets oil prices have seen a stronger start with Nymex crude trading up 0.5% ahead of data which is expected to show a drop in crude oil inventories in the USA. The dollar index currently stands at 93.83, after closing on Tuesday with a 0.4% gain after strong retail sales figures from the USA bolstered expectations for third-quarter growth. The index set a low of 92.84 on August 3.

The macroeconomic agenda is busy today with the initial focus on the preliminary reading of second-quarter eurozone GDP. Despite the small pick-up in momentum reported from Germany last week and stronger signals from France recently, eurozone growth is forecast to be unchanged from the 0.6% rate reported in the first quarter. UK employment figures are also scheduled ahead of housing market figures from the USA. Building permits are forecast at an annualised 1.25 million units after they increased to 1.28 million units in June. Housing starts are seen stabilising at an annualised 1.22 million units, supported by strong job growth, improving wages and historically low mortgage rates.

The minutes of the US Federal Open Market Committee’s July meeting are also due, although no surprises are expected.

For the base metals, recent fundamental developments should help to provide underlying support and there could be additional option-related volatility in aluminium and zinc given large call positions around the $2,100 and $3,000 strikes. Settlements against the August prompt could also create volatility. But considering the scale of recent events there is the danger of some bullish exhaustion with a modest profit-taking correction likely in the short term.

The precious metals appear to have found support at current levels. We expect gold will continue to find an element of dip-buying support given the current geopolitical climate. But the fact recent gains in both silver and platinum were fuelled by short covering rather than fresh longs suggests speculative investors are not overly bullish and both metals will be vulnerable to further pressure if bearish speculators re-engage.

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

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