Volume has been above average with 7,311 lots traded. This morning’s earlier weakness came after a generally stronger day on Wednesday that saw prices closed up an average of 1.1% – so the series of up down days with an overall downward bias continues.
Gold and silver prices are little changed this morning with spot gold prices at $1,279.60 per oz, although the PGMs are up an average of 0.4%, but this comes after a generally weaker day on Wednesday that saw the complex closed down an average of 0.6%. With gold prices already having run higher in recent weeks on the back of political and geopolitical uncertainty, we are not surprised that there is some profit-taking to be absorbed and the market is likely to remain volatile as we pass through the French presidential elections.
Sentiment in China remains bearish as seen by the persistent retreat across the metals, both base and industrial. That said, not all base metals prices on the Shanghai Futures Exchange are weaker this morning, zinc and lead that have been some of the weaker metals are up 0.4% and 1.2%, respectively, which suggests a degree of bargain hunting. The rest of the metals are, however, continuing to show weakness with aluminium prices falling 1.2%, tin prices are down 0.7%, nickel prices are down 0.5% and copper prices are off 0.9% at 45,200 yuan per tonne. Spot copper prices in Changjiang are down 0.9% at 45,470-46,670 yuan per tonne and the LME/Shanghai copper arb ratio was trading around 8.11. There were reports of some arb trading on Wednesday, which is another early sign that some bargain hunting may be materialising.
In other metals in China, September iron ore futures have continued to fall, they are down 2.3% on the Dalian Commodity Exchange, while on the SHFE, steel rebar prices are down 1.4%, gold prices are off 0.2% and silver prices are down 0.4%. In international markets, spot Brent crude oil prices are little changed at $53.12 per barrel, although that is after a much weaker day on Wednesday and the yield on the US ten-year treasuries is weaker at 2.21%.
Equities were mixed on Wednesday with the Euro Stoxx 50 closing up 0.3%, but the Dow closed down 0.6% at 20,404. Asia this morning, however, is firmer with the Nikkei up 0.1%, the Hang Seng is up 0.4%, the CSI 300 and ASX 200 are up 0.2% and the Kospi is up 0.5%. Asian equities seem to be taking comfort from better Japanese trade data that showed a pick-up in imports and exports. Earlier in the month, China also reported better exports and imports, all of which bodes well for global growth.
The dollar index is at 99.69, it seems to be consolidating recent weakness, the low on Wednesday was 99.46. In line with this consolidation, other currencies are treading water too with the euro at 1.0727, the pound sterling at 1.2813, the Australian dollar at 0.7506 and the yen at 108.92. In emerging market (EM) currencies, the yuan is weaker at 6.8857and most of the other EM currencies we follow are on a back footing, especially the Mexican peso, while the South African rand is rebounding after the recent weakness.
On the economic calendar today there is data on German PPI, US Philly Fed manufacturing, initial jobless claims, leading indicators and Natural gas storage. There is also data on EU consumer confidence and two speeches from Bank of England governor Mark Carney and one from US Treasury Secretary Steven Mnuchin – see table below for more details.
The tone in the base metals is not bullish at present and we put that down to the market adjusting from being too bullish after the US election and earlier this year. The higher prices attracted hoarded metal out of the woodwork and that is having to be absorbed and while that is happening upward momentum has been lost. In turn, that has prompted stale long liquidation and some short selling. The degree to the weakness being seen is metal dependent with zinc, lead, nickel and tin, all falling further than copper and aluminium. We would say the bearishness is momentum based, while the underlying fundamentals remain bullish if anything. As such we would run with the weaker trend for now, but expect them to turn higher before too long, especially as better Chinese and Japanese trade data suggest the global economy is improving.
Gold prices have already rallied as geopolitical tensions are running higher, higher prices are not surprising prompting some profit-taking, as at the end of the day Marine Le Pen is unlikely to be the next French president, but given the surprised over Brexit and the US election, there will be a lot of uncertainty and nervousness until the final vote is known. As such, we expect increased volatility in the weeks ahead, especially as other geopolitical events are running in parallel. Silver, platinum and palladium, are generally holding up well, but weakness in other industrial metals seems to be weighing on sentiment to some extent.