METALS MORNING VIEW 19/10: Metals generally firmer despite weakness in other markets

Three-month base metals prices on the London Metal Exchange were for the most part firmer with gains averaging 0.6% on the morning of Friday October 19, but this follows a general down day on Thursday, when the complex closed down by an average of 0.8%.

This morning, prices range from slightly lower on lead to up by 2.1% for nickel, while copper is up by 0.7% at $6,174 per tonne. Volume has been average with 6,824 lots traded as of 08:02am London time.

The precious metals were split with gold and silver prices slightly lower, while platinum and palladium are up by 0.4% and 1.2% respectively. The spot gold price was at $1,223.30 per oz

In China, the base metals prices were divergent with January nickel up by 1.7%, while the rest of the complex was down by an average of 0.7%. Copper was off by 0.2% at 50,060 yuan ($7,218) per tonne.

Spot copper prices in Changjiang were down by 0.4% at 49,970-50,120 yuan per tonne and the LME/Shanghai copper arbitrage ratio is at 8.10.

In other metals in China, the January iron ore contract on the Dalian Commodity Exchange was down by 1.6% at 515 yuan per tonne. On the Shanghai Futures Exchange, the January steel rebar contract was down by 1.7%, while the December gold and silver contracts were both up by 0.4%.

In wider markets, spot Brent crude oil prices were higher by 0.38% and were recently quoted at $79.62 per barrel. The yield on US 10-year treasuries was at 3.1849% and the German 10-year bund yield was at 0.4050%.

Asian equity markets were mixed on Friday: Nikkei (-0.56%), Kospi (+0.37%), the Hang Seng (0.89%), the CSI 300 (2.93%) and ASX200 (-0.05%). This follows weaker performance in western markets on Thursday; in the United States, the Dow Jones closed down by 1.27% at 25,379.45, while in Europe, the Euro Stoxx 50 was down by 1% at 3,243.08. China’s equities got a boost after regulators said they would keep risks under control, this despite weaker Chinese GDP data that showed growth of 6.5%.

The dollar index continues to react favorably to underlying US monetary policy with the index at 96.03.

With the dollar stronger, the other major currencies we follow are weaker: euro (1.1444), sterling (1.3020), the Australian dollar (0.7107) and the yen (consolidating at 112.47).

The yuan has also weakened and was recently quoted at 6.9338, while the emerging market currencies we follow are quite mixed and ranged between consolidating or strengthening. This suggests the latest dollar strength is more about other major currency market weakness and less about fresh emerging currency weakness.

The economic agenda has been focused on Asia. Japan’s core national CPI climbed 1%, while China’s data has been mixed with GDP disappointing, as was industrial production that fell to 5.8% from 6.1%. That said, fixed asset investment edged higher to 5.4% compared with 5.3% previously, unemployment fell to 4.9%, from 5% and retail sales climbed 9.2% compared with 9% previously. Later there is data on the EU current account, UK public sector borrowing requirement and US existing home sales. In addition, Federal Open Market Committee member Raphael Bostic and Bank of England governor Mark Carney are speaking.

The base metals prices are looking quite diverse but with the underlying theme of generally being in low ground. The two metals trying higher are zinc and tin, both potentially face supply disruptions with Iranian zinc potentially facing US sanctions, while Indonesian tin exports may suffer as the country once again cracks down on illegal mining. Aluminium, nickel and lead prices are trading sideways, in low ground, while copper prices are managing to hold above recent lows.

Overall, in this climate of uncertainty, consumers and would-be buyers may not feel in any hurry to chase the market higher so we expect more sideways trading, although should equity markets correct lower that could add further downward pressure on the metals.

Gold prices are holding up well considering the dollar strength – it may be that investors are getting more concerned about the state of the broader financial markets and gold at these price levels is once again looking attractive. Silver and platinum continue to follow gold’s lead, while palladium prices remain upbeat, supported by strong fundamentals.

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