METALS MORNING VIEW 18/04: Positive equities, monetary easing help to lift metal prices

Base metals prices on the London Metal Exchange are on divergent paths so far this morning, Wednesday April 18, despite the strong risk sentiment seen across wider financial markets following solid earnings results and the surprise monetary easing announced by China’s central bank.

Nickel (+3.5%), Aluminium (+1.2%) and copper (+0.7%) are trading positively, while the rest of the complex was down by an average of 0.3%.

Volume has been steady with 11,303 lots traded as of 06:55 am London time.

In the precious metals sphere, gold and silver are in a softer tone so far, down by 0.3% and 0.1% respectively after the People’s Bank of China (PBOC) surprised markets by cutting the reserve requirement ratio (RRR) by 100 basis points to offset tighter credit conditions created as authorities continue their clampdown on shadow banking.

In addition, United States Federal Reserve officials remain hawkish; Atlanta Federal Reserve President Raphael Bostic said the US economy is in a good place, with inflation heading towards its target. Platinum and palladium are in positive ground, up by around 0.3% reflecting the rise in risk appetite.

On the Shanghai Futures Exchange today, base metals prices are also mixed with copper (+0.2%), zinc (+0.7%) and tin (+0.1%) in positive ground, while aluminium (-0.2%), lead (-0.2%) and nickel (-0.2%) are weaker.

In other metals in China, iron ore prices are up by 1.8% at 448 yuan per tonne on the Dalian Commodity Exchange, while SHFE steel rebar prices are little changed.

In wider markets, spot Brent crude oil prices are up by 0.8% at $72.16 per barrel, bolstered by supply disruption concerns.

Equities in Asia today are positive after US equities rallied for a second day following better-than-expected earnings; the Nikkei 225 was up 1.5%, with similar gains in the Hang Seng (+0.7%), ASX 200 (+0.2%) and CSI 300 (+0.1%).

In the currencies the US dollar is flat against most major currencies; the dollar index at 89.52 remains comfortable range trading for the moment. The Japanese yen has softened following positive developments relating to North Korea and that this week’s summit between US President Donald Trump and Japanese Prime Minister Shinzo Abe will not see new trade demands from the US.

Economic data overnight showed Japan recorded a trade surplus of 119.2 billion yen in March, as exports underwhelmed, rising 2.1% year on year compared with the 5.6% forecast. Focus for the rest of today will be on monetary policy with inflation readings from the United Kingdom and Eurozone scheduled.

Meanwhile, the Bank of Canada is expected to keep interest rates on hold at today’s monetary policy meeting, although there is a chance of a surprise rate increase after last week’s business outlook survey proved quite bullish, and the latest inflation data showed a small uptick. The Federal Reserve will also publish its latest Beige Book and several Fed officials are scheduled to speak.

China’s modest monetary easing, coupled with rebounding risk appetite is supporting price sentiment, however the fact that recent export figures from Japan and China have underwhelmed are a concern as they suggest global demand has weakened somewhat, reflecting trade-war concerns and the rise in geopolitical tensions. Metals such as zinc and lead could have room to recover following recent pressure, while aluminium may be vulnerable to profit-taking, although raw material supply concerns are likely to underpin.

In precious metals, prices remain supported but gold’s failure to extend to fresh highs suggests demand for haven assets is still not particularly strong. However we feel the combination of rising real interest rates, inflation and heightened geopolitical tension will lead gold and silver higher in the medium-to-longer term. In addition, the scale of speculative short exposure, particularly in silver, suggests they could have further room to rally.

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

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