METALS MORNING VIEW 25/03: Metals prices start week poorly amid risk-off sentiment

The London Metal Exchange three-month base metals prices ran into follow-through selling on the morning of Monday March 25 following the weak economic data points released at the end of last week.

Flash manufacturing purchasing managers’ index (PMI) data from the United States and Eurozone were disappointingly soft and underscored weakening global economic growth.

The three-month nickel price was the weakest of its peers, with a 0.7% decline. Tin closely following with a drop of 0.5%. Aluminium, zinc and lead were all down by 0.4%. The three-month copper price was unchanged as at 6.12am London time, but on average, the complex was down by 0.4%.

In terms of volume, a total of 5,041 lots had traded on LME Select which is lower than last Monday’s 6,328 lots.

While global risk sentiment deteriorates, risk-averse investors have run to the safety of haven assets.

Spot precious metals prices were broadly up as a result; gold was up by 0.3% at $1,316.79 per oz, silver rose by 0.2% to $15.45 per oz and platinum was up by 0.6% at $849.10 per oz. Palladium bucked trend with a dip of 0.2% as it corrects lower from a historic high of $1,617.50 per oz – it was recently quoted at $1,561.

In China, the base metals prices on the Shanghai Futures Exchange had an even poorer start to the week than their LME counterparts with an average price decline of 0.9%.

The May nickel contract was trading below 100,000 yuan ($14,939) per tonne, down by 1.6%, while copper was off by 1.5% at 48,320 yuan per tonne. The rest of the complex was similarly under selling pressure and weaker; the May contracts for aluminium, lead and tin were down by 0.8%, 0.7% and 0.6% respectively, while the May zinc contract has had a milder sell-off this morning with a decline of 0.2%.

Meanwhile, the spot copper price in Changjiang was at 49,330-49,450 yuan per tonne on Monday, compared with 49,920-50,080 yuan per tonne on Friday. Meanwhile the LME/Shanghai copper arbitrage ratio was at 7.41, a contrast to last week’s close of 7.51.

Precious metals prices on the SHFE saw gains this morning, with the June gold and silver contracts up by 0.6% and 0.1% respectively. Other metals prices in China were weaker with the most-traded May iron ore contract on the Dalian Commodity Exchange down by 0.2% and the May rebar contract on the SHFE off by 1%.

As worries mount on global economic growth, Brent crude oil price have come under selling pressure, recently down by 0.4%. The weak manufacturing PMI data from Germany has kept the German 10-year bond yield below zero at -0.0100%, while the US 10-year treasuries bond yield managed to eke out a small gain of 0.11%, trading at 2.4461% recently.

Following the negative closes in US and European equity markets, Asian equities have started the week under intense selling pressure. The Nikkei 225 led the charge lower with a decline of 3.01%, followed by a drop of 2.45% in Topix, a 2.37% fall in the CSI 300 Index while the Hang Seng also struggled with a decline of 2.02%.

The dollar index remained fairly resilient at 96.57 at the time of writing while other currencies like the Euro, Australian dollar and the Japanese yen managed to produce very mild gains of 0.10%, 0.05% and 0.14% respectively. Over the weekend, news saw fresh support for UK Prime Minister Theresa May but Brexit uncertainty continues to put selling pressure on the pound sterling, which was recently down by 0.16% and trading just below 1.3200.

Economic data released this morning saw Japan’s all industry activity index for January fall by 0.2% against an expected decline of 0.4% – an indication that Japan’s economy remains fairly sluggish. Also overnight, Chicago Federal Reserve president Charles Evans discussed the possibility that the US central bank could ease monetary policy if economic activity softens more than expected.

Other economic data of note today includes German IFO business climate, China’s CB leading index and the Belgian NBB business climate index.

Poor economic data points paint a rather worrying macroeconomic picture which has undermined the demand outlook for all of the base metals despite evidence of a continued tightening of fundamentals.

The diminishing feel-good factor from the optimistic US-China trade talks and dovish Federal Reserve stance has failed to inspire further upside. As such, the path of least resistance is to the downside for now.

The precious metals prices gained higher this morning as Brexit uncertainty, fresh concern over lower US economic growth, an extremely dovish Federal Reserve and persistently weak data points from China continue to encourage risk-averse investors to diversify their portfolio.

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