METALS MORNING VIEW 19/05: Prices rebounded off lows on Thursday, will there be follow through buying today?

The base metals are on divergent paths this morning, Friday May 19, with three-month London Metal Exchange lead prices up 0.4%, copper prices up 0.3% at $5,597 per tonne, while nickel prices are down 1% at $9,085 per tonne and the rest are little changed.

Volume has been light with 4,161 lots traded as of 06:14 BST.

Thursday was generally a down day in the base metals complex, but prices did get some lift off the day’s lows. By the close, prices were down an average of 0.5%, although lead and zinc prices weighed on the downside with losses of 2% and 1%, respectively, but at the day’s lows they had been down 4.1% and 3.3%. Copper prices closed down 0.5% at $5,583 per tonne, while nickel and tin prices rebounded to close up with gains of 0.5% and 0.2%, respectively.

Spot gold is little changed at $1,247.69 per oz this morning, as are palladium prices, while silver prices are up 0.3% at $16.64 and platinum prices are down 0.2%. This comes after a solid down day on Thursday when the complex closed down an average of 1.9%, with palladium leading on the downside with a 2.7% fall. The pullback in the precious metals seems more to do with profit-taking as the political uncertainty in Washington DC remains.

In Shanghai this morning, most of the base metals trading on the Shanghai Futures Exchange are stronger, the exception is lead that is down 1.3% and nickel that is off 0.1%. On the upside, aluminium and tin prices are up 0.6%, copper prices are up 0.2% at 45,240 yuan per tonne and zinc prices are little changed. Spot copper prices in Changjiang are up 0.3% at 45,180-45,280 yuan per tonne, while the LME/Shanghai copper arb ratio is slightly easier at 8.08.

Steel rebar prices on the SHFE are up 3.1% and September iron ore prices on the Dalian Commodity Exchange are up 0.5% at 476.50 yuan per tonne, while gold prices are down 0.3% and silver prices are down 0.9%.

In international markets, spot Brent crude oil prices are up 0.9% at $52.94 per barrel, a firmer oil price may well help underpin commodity prices, if bargain hunting is looking to take advantage of cheaper metals prices. The yield on the US ten-year treasuries is little changed at 2.24%, which suggests broader markets remain nervous about the US political situation.

Equities were mixed on Thursday with the Euro Stoxx 50 falling 0.6%, while the Dow managed to rebound 0.3% after its wobble on Wednesday. Asia has been mixed this morning, the Hang Seng is up 0.4%, the Nikkei is up 0.3%, the Kospi is up 0.2%, the CSI 300 is little changed, while the ASX 200 is off 0.2%.

The dollar index consolidated on Thursday by rebounding to 98.00, this after four days of weakness that saw the index fall to a low of 97.33 from 99.63 on May 11. This morning the index is at 97.81, but there is little question that the trend in the dollar index is now to the downside. The euro is consolidating around 1.1111, it set a high of 1.1172 yesterday, the sterling is flat at 1.2951, the Australian dollar is consolidating at 0.7424 and the yen is at 111.42.

The yuan is slightly weaker at 6.8872, the Brazilian real has plunged around 9% over the past two days, the other emerging market (EM) currencies we follow weakened recently, but are now trying to consolidate.

The economic agenda today is light and focused on Europe with German PPI, the EU current account, UK CBI industrial order expectations and EU consumer confidence – see table below for more details.

Underlying tails on Thursday’s candlesticks showed dip buying emerged and the stronger than expected US data on initial jobless claims and Philly Fed manufacturing index, may have been the catalyst for that. Tin prices avoided the dip, they headed higher from the opening. This morning, consolidation is underway and given the underlying tails we would not be surprised to see further gains. Key will be whether traders wade in with any volume. Overall, the base metals are likely to remain vulnerable, another large stock increase say in copper, or something similar, could knock the wind out of any emerging bullishness.

Gold prices consolidated recent gains on Thursday and we put that down to profit-taking as the dollar rout halted. Silver prices have followed gold’s lead, while palladium prices are looking weak - we think that is due to weaker auto sales data in the EU. Platinum prices seem to be following gold’s lead, but will also be affected by the health of the auto industry. With political uncertainty in the US still present, we would expect dips in gold and silver prices to be well supported.

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