METALS MORNING VIEW 24/08: Rebounds underway in most of the metals

Three-month base metals prices on the London Metal Exchange were for the most part in positive territory on the morning of Friday August 24, with tin prices bucking the trend with a 0.3% decline, while the rest were up by between 0.2% for aluminium and 1.1% for lead. The three-month copper contract was up by 0.8% at $6,014 per tonne.

Volume has been high with 9,953 lots traded as at 07.31am London time.

This morning’s general weakness follows a mixed performance on Thursday that saw some polarized price moves with nickel down by 2.5% and lead closing up by 2.2%, copper off by 0.8% and tin down by 0.6%, while zinc and aluminium were up by 0.1% and 0.2% respectively.

Precious metals prices were up across the across the board with gains averaging 0.6% – led by a 1.1% rise in platinum prices, while spot gold prices were up by 0.3% at $1,188.97 per tonne.

In China, base metals prices on the Shanghai Futures Exchange were for the most part firmer, the exception being nickel where prices were off by 0.9%. The rest were up by an average of 1.4%, led by a 2.6% gains in the October lead and zinc contracts. The most actively traded October copper contract was up by 0.8% at 48,630 yuan ($7,072) per tonne.

Spot copper prices in Changjiang were up by 0.4% at 48,380-48,580 yuan per tonne and the LME/Shanghai copper arbitrage ratio was weaker at 8.09 after 8.11 on Thursday.

In other metals in China, the January iron ore contract on the Dalian Commodity Exchange was up by 0.1% at 489.50 yuan per tonne. On the SHFE, the January steel rebar contract was down by 07%, while the December gold and silver contracts were down by 0.2% and 0.3% respectively.

In wider markets, spot Brent crude oil prices were up by 0.60% at $75.15 per barrel this morning. The yield on US 10-year treasuries was firmer at 2.8291%, as was the German 10-year bund yield at 0.3450%.

Asian equity markets were for the most part stronger on Friday: Nikkei (+0.85%), CSI 300 (+0.53%), Kospi (+0.46%, the ASX200 (+0.05%), while the Hang Seng is bucking the trend with a 0.15% decline. This follows a weaker performance in western markets on Thursday; in the United States, the Dow Jones closed down by 0.30% at 25,656.98, while in Europe the Euro Stoxx 50 closed down by 0.03% at 3,419.26.

The dollar index is consolidating this morning and was recently quoted at 95.48, 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 consolidating and slightly weaker, most of the other major currencies we follow are also consolidating: sterling (1.2827), the euro (1.1570), the Australian dollar (0.7282), but the yen is weaker at 111.35.

The yuan is also weaker and was recently quoted at 6.8846, as are most of the emerging market currencies we follow, especially the Brazilian real (4.1122) amid political uncertainty ahead of elections that is undermining confidence.

On the economic agenda, data out already shows Japan’s core consumer price index (CPI) rising 0.8% and services producer price index (PPI) rise 1.1%, both unchanged from previous readings, while Germany’s final gross domestic product (GDP) increased by 0.5%, which was also unchanged.

Data out later includes high street lending from the United Kingdom and US durable goods orders. In addition, UK Monetary Policy Committee member Andrew Haldane and US Federal Reserve Chairman Jerome Powell are speaking at the central bankers’ meeting at Jackson Hole in the US state of Wyoming.

In recent reports we wondered whether the rally in the base metals was just another “dead-cat bounce” – the market seems undecided as aluminium, lead and zinc prices are continuing to extend rebound gains, while the rebounds in copper, nickel and tin prices stalled on Thursday. With US-China trade talks ending without any breakthrough the markets are likely to remain nervous. Today, with the long weekend ahead for the UK and therefore the LME, there may be some book squaring and firmer prices as a result.

Overall, on the basis of oversold prices, large short positions, relatively healthy long-term fundamentals and a pick-up in physical interest, 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

macroeconomic data