METALS MORNING VIEW 23/01: Metals prices consolidate while awaiting fresh direction

Three-month base metals prices on the London Metal Exchange had dipped in recent days on the back of global growth concerns and after follow-through buying from last week waned, but the complex is broadly up again with average gains of 0.3% this morning, Wednesday January 23.

Tin, that has been a star performer this year, was bucking the trend with a 0.3% dip to $20,390 per tonne. The rest were up by between 0.1% for aluminium and 1% for zinc, with copper prices up by 0.6% at $5,966 per tonne.

Volume across the LME base metals complex was above average with 7,113 lots traded as at 6.47am London time.

Precious metals prices were mixed with gold little changed at $1,283.90 per oz, palladium off by 0.2% at $1,343.00 per oz, while silver and platinum prices were both up by 0.4%.

In China, base metals prices on the Shanghai Futures Exchange were similarly mixed with the March zinc and aluminium contracts up by 1% and 0.6% respectively, while the rest were weaker by between 1.3% for the May nickel contract and 0.2% for the March lead contract. The most-traded March copper was down by 0.3% at 47,530 yuan ($6,982) per tonne.

Spot copper prices in Changjiang were down by 0.4% at 47,220-47,420 yuan per tonne and the LME/Shanghai copper arbitrage ratio, at 7.97, was little changed compared with roughly the same time on Tuesday.

In other metals in China, the May iron ore contract on the Dalian Commodity Exchange was weaker by 0.9% at 527 yuan per tonne. On the SHFE, the May steel rebar contract was off by 0.6%. With road transport expected to slow down later this week, ahead of the Lunar New year holidays (February 4-10), activity is also likely to slow, which is expected to lead to consolidation.

In wider markets, the spot Brent crude oil price was stronger by 0.36% at $61.61 per barrel – prices are consolidating after having pushed higher on Monday.

The yield on US 10-year treasuries has drifted again, it was recently quoted at 2.7414%. The yields on the US 2-year and 5-year treasuries have inverted again, they were recently quoted at 2.5827% and 2.5774% respectively, which could start to worry equity markets. The German 10-year bund yield was also weaker at 0.2200%. The weaker yields suggest less risk-on appetite.

Asian equity markets were mixed on Wednesday: Nikkei (-0.14%), Hang Seng (+0.04%), the CSI 300 (-0.07%), the ASX 200 (-0.26%) and Kospi (+0.47%).

This morning’s performance in Asia follows a weaker performance in western markets on Tuesday; in the United States, the Dow Jones Industrial Average closed down by 1.22% at 24,404.48, and in Europe, the Euro Stoxx 50 was down by 0.39% at 3,112.80.

The dollar index’s recent rebound has now paused, it was recently quoted at 96.31, this is around the lower ranges of the late-November to late-December 2018 high ground. This could be a test of the January 7 breakdown level, or the overall upward trend reasserting itself. Given the more dovish US Federal Reserve stance of late, we would not be surprised if this rebound in the dollar peters out.

The recent pause in the dollar’s rebound is prompting consolidation in the other major currencies we follow: the euro (1.1368), the Australian dollar (0.7133), the yen (109.62), although sterling is firmer at 1.2964.

The yuan had been weakening in recent days, but at 6.7869 it is firmer this morning. Most of the other emerging market currencies we follow are also consolidating, the exceptions being the real and the ringgit that are weaker.

Economic data already out on Wednesday shows Japan’s all industries activity dropped by 0.3%, this after a 2.1% rise previously, while the Bank of Japan kept interest rates unchanged at -0.10%. Data out later includes UK Confederation of British Industry (CBI) industrial orders expectations, EU consumer confidence, US house prices and the Richmond manufacturing index.

Aluminium, lead and zinc prices on the charts look well placed to extend gains, but as we saw earlier on in the week when other metals’ prices attempted to push higher, they ran into overhead supply. So although we remain quietly bullish, we would not have too much confidence in any directional move at the moment, especially given weak economic data, no concrete news on the US/China trade talks and at a time when liquidity is likely to start to fall ahead of the Lunar New Year holidays.

The limited pullbacks in gold and palladium prices still show underlying robustness and for gold there is still considerable uncertainty in the financial markets to warrant some haven demand. Silver and platinum remain the weaker precious metals, but they are likely to follow gold’s lead to varying degrees.

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