METALS MORNING VIEW 25/10: Metals give back recent price gains while weakness in equities weighs on sentiment

Three-month base metals prices on the London Metal Exchange were for the most part under pressure during morning trading on Thursday October 25, with the complex down by an average of 0.2%. Poor US new home sales data on Wednesday and weakness in equity markets are weighing on market sentiment.

Copper leads the weakness with a decline of 0.8% as at 07:39am London time, with aluminium, zinc and tin down between 0.2% and 0.5%. Nickel and lead are up by 0.3% and 0.2% respectively. Volume has been strong with 11,295 lots traded.

Nickel and aluminium are looking the weakest in that their prices set fresh multi-lows earlier this morning, but dip-buying has since been noted in nickel. For the rest, tin is generally trending higher and copper, lead and zinc are trading sideways above recent lows.

Gold prices are looking more robust and the fact they are climbing alongside a stronger dollar suggests haven buying being seen. This morning spot gold prices were up 0.4% at $1,237.18 per oz. Silver prices were flat at $14.76 per oz and platinum prices were consolidating around $827 per oz, while palladium prices that have outperformed on the upside are correcting, with prices off 1.9% at $1,121.50 per oz. On Tuesday, palladium prices set a fresh record high at $1,152.50 per oz.

In China, base metals prices on the Shanghai Futures Exchange were mixed with the December copper and January nickel down 1% and 1.3% respectively, with the former at 49,630 yuan ($7,146) per tonne. December lead prices bucked the weaker tone with a 1.3% price gain, while the others were little changed.

Spot copper prices in Changjiang were down by 1.0% at 49,390-49,800 yuan per tonne and the LME/Shanghai copper arbitrage ratio was firmer at 8.09, compared with 8.07 on Wednesday.

In other metals in China, the January iron ore contract on the Dalian Commodity Exchange was up by 1.4% at 535 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 0.4% and 0.5% respectively.

In wider markets, spot Brent crude oil prices continue to drift lower and were weaker by 0.15% at $75.52 per barrel after Saudi Arabia says it will keep the world adequately supplied with oil. The yield on US 10-year treasuries was weaker at 3.1121%, as was the German 10-year bund yield at 0.3900%. The weaker yields suggest demand for treasuries is up – which is another sign of haven buying.

Asian equity markets were for the most part down heavily on Thursday, the exception was China’s CSI 300 that was up 0.19%, while the rest were down: Nikkei (-3.72%), Kospi (-1.63%), the Hang Seng (-1.70%), and ASX200 (-2.83%). This follows a weaker performance in western markets on Wednesday; in the United States, the Dow Jones closed down by 2.41% at 24,583.42, while in Europe, the Euro Stoxx 50 was down by 0.34% at 3,130.33.

The dollar index has paused this morning and was recently quoted at 96.30, this after reaching a high of 96.55 on Wednesday. With the dollar’s strength on hold, the other major currencies we follow are consolidating, albeit after Wednesday’s weakness: euro (1.1407), sterling (1.2915), the Australian dollar (0.7064) and the yen (112.18).

The yuan continues to weaken and was recently quoted at 6.9468 – the weakness will be helping to alleviate some of the stress from tariffs. In the emerging market currencies we follow, the ringgit, peso and rupiah are the ones showing the most stress, while the rest seem to be managing to consolidate – even with the financial markets showing weakness.

Data already out today shows Japan’s services producer price index (PPI) came in at 1.2% as expected and the Spanish unemployment rate fell to 14.6% from 15.3% previously. Data out later includes German Ifo business climate, China leading indicators as well US releases that include durable goods orders, goods trade balance, wholesale inventories, initial jobless claims, pending home sales and natural gas storage. In addition, US Federal Open Market Committee members Richard Clarida and Loretta Mester are speaking.

While the fundamentals are generally constructive, the economic background is still uncertain, so for now we expect more of the same. With metals prices already down significantly since June, they may be able to withstand weakening further if the sell-off in equities continues. With the US equity markets showing some stress, it maybe that policymakers become more dovish on trade tariffs and sanctions – any such development could give the metals a long overdue boost.

Palladium prices have run higher, driven by investment interest and strong fundamentals, while gold prices are also firmer, which we put down to a pick-up in demand for haven assets now that equities are starting to show signs of correcting more. Silver and platinum are following gold’s lead from a distance.

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