METALS MORNING VIEW 21/08: Rebound continues across the metals

The base metals were up across the board by an average of 0.8% basis three-month prices on the London Metal Exchange on the morning of Tuesday August 21.

This extends the rebounds that got underway on Thursday August 16 – the question is whether this is another dead-cat bounce or the start of a more meaningful recovery after a long drawn out downtrend that for most metals has dominated since early in the year.

Volume has been above average, with 7,660 lots traded as at 07.03am London time.

With some signs of a pick-up in physical interest as the end of the summer lull approaches and prices looking oversold, there seems a good chance that bargain hunting could gain momentum.

From the 2018 highs to their recent lows, base metals prices have dropped by an average of 25.5% and as of this morning were sitting by an average of 5% above those lows.

Gold, silver and platinum prices were up by an average of 0.5%, with spot gold prices at $1,195.54 per oz, while palladium prices were off by 0.2% at $915.80 per oz. This follows a general day of strength on Monday when the complex closed up by an average of 0.5%.

In China, base metals prices on the Shanghai Futures Exchange were mixed with copper, aluminium, zinc and nickel prices up 1%, but lead prices off 0.5% and tin prices 0.9% lower. The most-actively traded October copper contract was up by 0.8% at 48,470 yuan ($7,085) per tonne.

Spot copper prices in Changjiang were up by 0.4% at 48,570-48,780 yuan per tonne and the LME/Shanghai copper arbitrage ratio was at 8.02.

In other metals in China, the January iron ore contract on the Dalian Commodity Exchange was down by 1.9% at 495 yuan per tonne. On the SHFE, the January steel rebar contract was up by 0.6%, while the December gold and silver contracts were up by 0.8% and 0.2% respectively.

In wider markets, spot Brent crude oil prices were up by 0.19% at $72.21 per barrel this morning. The yield on US 10-year treasuries was firm at 2.8289%, while the German 10-year bund yield was also firm at 0.3050%.

Asian equity markets were for the most part firmer on Tuesday: Nikkei (0.09%), Hang Seng (0.52%), CSI 300 (1.85%), Kospi (0.99%) while the ASX200 was off by -0.96%. This follows a firmer performance in western markets on Monday; in the United States, the Dow Jones closed up by 0.35% at 25,758.69, while in Europe the Euro Stoxx 50 closed up by 0.61% at 3,393.67.

The dollar index is correcting lower and was recently quoted at 95.56, after last Wednesday’s peak at 96.99. On the chart, the move above 95.66 on August 10 suggested the index had triggered a bullish head and shoulder pattern, so we need to be wary about how far this pullback in the index goes, as it could just be testing the validity of the breakout. With the base metals prices trading inversely to the dollar, any resumption of the dollar’s bull market could further weigh on metals’ prices.

With the US dollar correcting lower, most of the other major currencies we follow are stronger: sterling (1.2830), the euro (1.1516), the Australian dollar (0.7352) and the yen (110.07).

The yuan is also strengthening, recently quoted at 6.8433, after having been as weak as 6.9347 on August 15.

The economic agenda is light today, with data on UL public sector borrowing and Confederation of British Industry (CBI) Industrial order expectations. Thursday will be an important data day, when the flash manufacturing PMIs are released.

With the dollar weakening the metals are getting some lift and reports of good physical interest suggest a degree of bargain hunting, which could trigger short-covering. That said, overall sentiment is fragile given the uncertainty over US trade policy and until these disputes are settled, the metals prices are likely to remain volatile. One note of interest was that copper prices managed to rally on Monday despite a wage settlement at Escondida – this suggests that a lot of bearishness may already be priced in.

The precious metals are following the path of the base metals, which suggests they are also following the dollar and the overall market sentiment.

London Metal Exchange, base metals prices

Shanghai Futures Exchange, base metals prices

macroeconomic data