METALS MORNING VIEW 22/08: Metal price rebounds halt, markets waiting for new direction

Base metals prices were mixed on the London Metal Exchange on the morning of Wednesday August 22, with weakness seen in copper, lead and zinc, while nickel and tin prices increased and aluminium remained unchanged.

Copper was down by 0.6%, lead down 0.2% and zinc down 0.9%, while nickel was up 0.8% and tin up 0.3%. Three-month copper prices were recently quoted at $6,027 per tonne.

Volumes have been average, with 5,775 lots traded as at 07.10am London time.

This morning’s consolidation follows a general day of firmness, with the base metals complex closing up by an average of 1.1%.

Precious metals prices were slightly weaker, with gold, silver and platinum prices all off by 0.1%. Spot gold was at $1,194.45 per oz, while palladium prices fell 0.4%. This follows a day of gains for gold and silver prices on Tuesday, with prices up either side of 0.4%, while the platinum group metals were weaker.

In China, base metals prices on the Shanghai Futures Exchange were in positive territory as took their direction from Tuesday’s LME session.

Prices were up by an average of 0.7%, with gains of 0.3% for aluminium and 1.4% for tin. The most actively traded October copper contract was up by 0.5% at 48,690 yuan ($7,114) per tonne.

Spot copper prices in Changjiang were up by 0.1% at 48,650-48,780 yuan per tonne and the LME/Shanghai copper arbitrage ratio was firmer at 8.08 after 8.02 on Tuesday.

In other metals in China, the January iron ore contract on the Dalian Commodity Exchange was down by 0.7% at 493.50 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 0.3% and 0.1% respectively.

In wider markets, spot Brent crude oil prices were up by 0.10% at $72.86 per barrel this morning. The yield on US 10-year treasuries was little changed at 2.8269%, while the German 10-year bund yield was firmer at 0.3205%.

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 Tuesday; in the United States, the Dow Jones closed up by 0.25% at 25,822.29, while in Europe the Euro Stoxx 50 closed up by 0.53% at 3,411.66.

The dollar index is consolidating and was recently quoted at 95.31, after last Wednesday’s peak of 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 the recent 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 consolidating, most of the other major currencies we follow are also consolidating around recent highs: sterling (1.2901), the euro (1.1565), the Australian dollar (0.7342) and the yen (110.41).

The yuan is also consolidating and was recently quoted at 6.8430 after having been as weak as 6.9347 on August 15. And most of the emerging market currencies we follow are consolidating, although the Brazilian real has weakened to a multi-year low of 4.0481.

The economic agenda is light today. Japan’s all-industries activity fell 0.85 after a 0.1% gain previously and data out later includes US existing home sales, crude oil inventories and the Federal Open Market Committee (FOMC) minutes. Thursday will be an important data day, when the flash manufacturing PMIs are released.

For now, the political developments in the US over some of US president Donald Trump’s team are not having too much of a negative impact on market sentiment, but that could change as the day unfolds.

This evening’s FOMC minutes are expected to remain hawkish, but if they show signs of concern over the potential impact of US trade policies and are less hawkish than expected, that could be negative for the dollar and therefore supportive of metal prices.

For now, the base metals price recoveries are on hold, so we wait to see if the recent strength is just another dead-cat bounce – we expect Thursday’s flash manufacturing PMI data to provide some direction.

Overall, on the basis of oversold prices, large short positions and relatively healthy long-term fundamentals, we do favor the upside from these levels, but the market may need to establish a base before buyers are prepared to chase prices higher.

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