METALS MORNING VIEW 23/08: Metals prices consolidate; markets awaiting direction from PMI data, Chinese trade talks

Three-month base metals prices on the London Metal Exchange were mainly down on the morning of Thursday August 23, with lead prices bucking the trend with a 0.2% rise, while the rest were off by between 0.5% for aluminium and 1.5% for nickel. The three-month copper contract was down by 1.2% at $5,941 per tonne.

Volume has been high with 11,053 lots traded as at 07.37am London time.

This morning’s general weakness follows a mixed performance on Wednesday that saw copper prices fall 0.8%, gains in zinc and tin of 1.3% and 0.9% respectively, while the rest were little changed.

Precious metals prices were weaker across the board with prices down by an average of 0.6%, with spot gold prices off by 0.4% at $1,192.10 per oz.

In China, base metals prices on the Shanghai Futures Exchange also gave a varied performance this morning; the October lead and zinc contracts were up by 1.7% and 1.2% respectively, while the rest of the complex was weaker, with the most actively traded October contract down by 0.8% at 48,160 yuan ($7,037) per tonne.

Spot copper prices in Changjiang were down by 0.9% at 48,130-48,400 yuan per tonne and the LME/Shanghai copper arbitrage ratio was firmer at 8.11 after 8.08 on Wednesday.

In other metals in China, the January iron ore contract on the Dalian Commodity Exchange was down by 1.4% at 486.50 yuan per tonne. On the SHFE, the January steel rebar contract was down by 07%, while the December gold contract was up by 0.3% and the December silver contract was down by 0.4%.

In wider markets, spot Brent crude oil prices were down by 0.50% at $74.49 per barrel this morning. The yield on US 10-year treasuries was weaker at 2.8144%, while the German 10-year bund yield was firmer at 0.3410%. The minutes from the Federal Open Market Committee (FOMC) showed a Fed on course to continuing tightening monetary policy, but they did discuss whether they have room to act should another recession get underway. In addition, they noted a key risk was if the trade wars escalated.

Asian equity markets were mixed on Thursday: Nikkei (+0.22%), Hang Seng (-0.43%), CSI 300 (+0.38%), Kospi (+0.41%) and the ASX200 (-0.34%). This follows a similarly mixed performance in western markets on Wednesday; in the United States, the Dow Jones closed down by 0.34% at 25,733.60, while in Europe the Euro Stoxx 50 closed up by 0.25% at 3,420.18.

The dollar index is rebounding this morning and was recently quoted at 95.32, after Wednesday’s low of 94.93. 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 firmer, most of the other major currencies we follow are weaker: sterling (1.2878), the euro (1.1568), the Australian dollar (0.7295) and the yen (110.80).

The yuan is also weaker and was recently quoted at 6.8682, while most of the emerging market currencies we follow are also slightly weaker.

The economic agenda is heavy today, with data out already showing Japan’s flash manufacturing purchasing managers’ index (PMI) edged higher to 52.5 from an upwardly revised 52.3 and previous print of 51.6. Later there is flash manufacturing and services data out across Europe and the US. In addition, there is data on UK realized sales, US initial jobless claims, Chinese leading indicators, US house prices and new home sales, EU consumer confidence and US natural gas storage.

In addition, Germany’s Bundesbank President Jens Weidmann is speaking and day one of the central bankers’ meeting at Jackson Hole in the US state of Wyoming gets underway.

In recent reports we wondered whether the rally in the base metals was just another “dead-cat bounce” and the weakness in copper, nickel and tin suggests it may be. That said, today’s PMI data is likely to set the tone as are the US-China trade talks that get underway in Washington.

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.

London Metal Exchange, base metals prices

Shanghai Futures Exchange, base metals prices

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