METALS MORNING VIEW 26/03: Mixed start to trading while metals await further direction

Three-month base metals prices on the London Metal Exchange had a mixed start to trading on Tuesday March 26 while recessionary fears subsided.

The US 10-year bond yield has rebounded off the 2017 lows reached on Monday, providing global markets with some relief and allowing Asian equity indexes to trade confidently higher on the back of improved risk sentiment.

In terms of volume, a total of 4,497 lots had traded on LME Select as at 6.37am London time, which is slightly lower than the 5,041 lots traded at a similar time on Monday.

Three-month base metals on the LME were holding up slightly better on Tuesday than they did on Monday, but the complex remains under pressure; only aluminium and lead managed to secure any gains this morning with both up by 0.2%, while the rest were weaker. Nickel and tin dropped by 0.7% and 0.6% respectively, while copper (-0.2%) and zinc (-0.1%) recorded more marginal losses.

Spot precious metals prices were also slightly weaker this morning, with the complex giving up some of Monday’s gains. Gold and silver were both off by 0.2%, with the former recently at $1,319.03 per oz and the latter at $15.48 per oz. Platinum slid 0.6% to $853 per oz, while palladium remains under selling pressure with the metal down by 0.3% at $1,574 per oz as the bullish momentum seen last week comes to an end.

In China, base metals prices on the Shanghai Futures Exchange remained under selling pressure this morning with the complex down by an average of 0.1%.

Zinc was an exception to the weaker tone exhibited by its peers, with the metal’s most-traded May contract securing a solid gain of 1.1% to 22,060 yuan ($3,286) per tonne amid healthy downstream demand outlook due to higher infrastructure spending which should increase demand for galvanized zinc.

The rest of the base metals traded on the SHFE struggled with nickel and tin down the most with declines of 0.6% and 0.5% respectively, followed by 0.4% falls in both copper and lead, while aluminium was down by 0.1%.

The persistent selling pressure has also affected spot copper prices in Changjiang, with the price recently at 49,230-49,330 yuan per tonne after 49,330-49,450 yuan per tonne on Monday. Meanwhile, the LME/Shanghai copper arbitrage ratio dipped to 7.40 on Tuesday, down from a close of 7.51 at the end of last week.

Precious metals on the SHFE secured marginal gains on Tuesday morning, with the June gold and silver contracts up by an average of 0.1%. Other metals in China continued to struggle; the May iron ore contract on the Dalian Commodity Exchange was down by 0.5% at 611 yuan per tonne, while the SHFE’s May rebar contract was recently at 3,685 yuan per tonne – down by 1.2%.

Decent buying pressure has helped Brent crude oil prices to edge as high as $67.52 per barrel this morning. The yield curve inversion, which was often seen as a leading recession indicator, is fueling fear of an impending recession in the global economy. The German 10-year bond yield remained negative at -0.0200 at the time of writing, while US 10-year Treasury bond yield managed to rebound and was recently at 2.4363.

Asian equity indices gave a mixed performance on Tuesday following a weak close in US and European markets on Monday; Topix (+2.57%), Nikkei (+2.15%) and ASX200 Index (+0.07%) all managed to secure gains, while the Hang Seng Index (-0.07%) and the CSI300 Index (-1.17%) were weaker.

Concerns over a potential recession in Europe pressured European equity markets on Monday, with the Euro Stoxx down by 0.16%, the FTSE 100 Index down by 0.42% and the DAX off by 0.15%. In the United States, the Dow Jones Industrial Average secured a marginal gain of 0.06% while the S&P500 closed with a small decline of 0.08%.

The dollar index was little changed on Tuesday while it trades at 96.57, a level similar to that traded at roughly the same time on Monday. Meanwhile the euro is holding at 1.1308, while the Japanese yen is trading sideways near 110.00 and the Australian dollar is up marginally as it trades near 0.7121 at the time of writing. The pound sterling is firm despite the Brexit uncertainty at 1.3205.

In data already out on Tuesday, the Bank of Japan’s core consumer price index came in at 0.4%, slightly below the previous reading of 0.5%. In Europe, market will get a sense of German consumer climate and Bank of England monetary policy committee member Ben Broadbent will speak at 11:00am London time.

A host of US economic data such as building permits, housing starts as well as the Richmond manufacturing index will also be published later on Tuesday.

Even though the base metals complex started the new trading week on a back foot, decent dip-buying interest emerged late on Monday to limit the pullback. With fresh US economic data this afternoon, metals prices will have a clearer mandate on which direction it will take. But with month-end fast approaching, book-squaring and a host of key economic data points due at the end of the week, this is shaping up to be a rather volatile trading week for metal traders.

Meanwhile, precious metals prices have started to ease away from their Monday highs, somewhat indicating that buyers lack conviction to stay around for higher prices. That said, haven assets remain an attractive alternative investments for risk averse investors looking to diversify their existing portfolios.

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