This comes after a shakeout and bounce on Monday, that saw a knee-jerk reaction on the downside following US president Donald Trump’s failure in getting his healthcare bill passed. At Monday’s lows, prices on the base metals complex had dropped an average of 2.5%, led by a 3.2% drop in zinc prices to $2,739 per tonne, but they recouped some lost ground later in the afternoon and ended the day down an average of 0.9%.
Gold prices have held on to Monday’s gains with spot prices at $1,254.30 per oz, platinum prices are up 0.5% at $970.90, while the others are little changed. This comes after a generally firmer day for the precious metals on Monday that saw fresh buying in gold, silver and platinum, as risk-off in other markets buoyed haven assets, the exception was palladium where prices corrected to $791 per oz, having in recent days broken higher to $815 per oz.
Base metals prices in Shanghai remain mixed this morning with prices down an average of 0.8%, but this is skewed by a 3.2% drop in lead prices, while zinc prices are down 1.6% and tin prices are off 0.6%. The rest of the base metals are firmer with aluminium little changed, nickel prices are up 0.2% and May copper prices are up 0.6% at 46,800 yuan per tonne. Spot copper prices in Changjiang are also up 0.6% at 46,450-46,650 yuan per tonne and the LME/Shanghai copper arb is weaker at 8.07.
In other metals in China, September iron ore prices are unchanged on the Dalian Commodity Exchange, while on the Shanghai Futures Exchange, steel rebar prices are up 1%, silver prices are up 0.6% and gold prices are up 0.3%. In international markets, spot Brent crude oil prices are up 0.4% at $51 per barrel and the yield on the 10-year US treasuries are around 2.38%.
Equities seem to have got over Monday’s jitters, the Euro Stoxx 50 and Dow closed off 0.2% having earlier been down around 0.9%, but Asia has generally rebounded this morning with the Nikkei up 1%, the Hang Seng is up 0.6%, the Kospi is up 0.2%, the ASX 200 is up 1.3%, although the CSI 300 is off 0.2%. Key now will be whether the markets see the recent sell-off as an opportunity to bargain hunt, or whether they shift to the side lines.
In FX, the dollar index remains weak at 99.16, although the index is above Monday’s spike lower of 98.85, which pierced the neckline of a head and shoulders pattern on the chart – so that is something that will need careful monitoring. Monday’s risk-off sell-off that hit the dollar led to gaps higher in many of the currencies with the euro leaping to a high of 1.0906, the currency was recently quoted at 1.0870, which is still above the gap. The sterling remains firmer at 1.2571, the yen is at 110.57, but the Australian dollar remains weak at 0.7612, no doubt dragged lower by weaker metals prices, especially iron ore prices.
The yuan is firmer at 6.8609 and the other emerging market currencies we follow look quite mixed. The peso, ringgit, rupiah and rupee strengthened as the dollar weakened, while they are giving back some of those gains this morning, while the rand and real weakened in line with the dollar and commodity prices.
Data out today is focused on the USA with the release of goods trade balance, wholesale inventories, HPI, consumer confidence and Richmond Manufacturing index. In addition, US Federal Open Market Committee member Robert Kaplan is speaking – see table below for more details.
The base metals have been on a back footing for some time now with upside initiatives being capped by overhead supply from stale long liquidation, profit-taking and forward selling. With strong overhead resistance, we should now get to see how bullish underlying sentiment is by seeing how well dips are supported. Underlying tails on Monday’s copper, aluminium, nickel and tin charts suggest fairly good support, while lead and zinc looked weaker. With Trump’s lack of progress, the UK about to trigger Article 50 and with the French election less than a month away, it is not surprising that the exuberance in the aftermath of Trump’s election victory has started to wane and markets are correcting. But, key will now be whether underlying economic activity is painting a bullish enough picture to prompt consumers to buy into the price weakness. Our overall view is that the economic outlook remains bullish.
Gold prices have latched on to the markets’ jitters and they also have all the political uncertainty that lies ahead to potentially benefit from too. As such, we remain bullish for gold prices, especially while the weaker dollar is struggling.
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