METALS MORNING VIEW 28/06: Metals looking brighter, but watching weakness in broader markets

Three-month copper prices are up 0.2% at $5,856 per tonne – volume is average with 4,952 lots traded, but unusually the volume in nickel, at 1,637 lots as of 06:39 BST, is greater than that of copper that has traded 1,377 lots.

This follows a strong performance on Tuesday when the base metals complex closed up an average of 1.2%, led by a 2.3% rise in nickel prices.

Precious metals are firmer across the board this morning with gains averaging 0.5% with gold prices up 0.3% at $1,252.14 per oz. This follows a generally stronger day on Tuesday that saw gold, silver and platinum prices close up an average of 0.5%, while palladium prices closed off 1% at $858 per oz.

The base metals on the Shanghai Futures Exchange (SHFE) are also up across the board this morning, up by an average of 1.3%. Lead is the outperformer with a 2.9% gain while copper prices are up 0.5% at 46,810 yuan per tonne ($6,882 per tonne). Spot copper prices in Changjiang are up 0.8% at 46,530-46,730 yuan per tonne and the LME/Shanghai copper arb ratio is weaker at 7.99, implying LME copper prices are rising faster than those in China.

Other industrial metals in China are stronger with September iron ore prices on the Dalian Commodity Exchange up 3.2% at 457.50 yuan per tonne, this is the second day where prices have gained over 3%. On the SHFE, steel rebar prices are up 3%, while gold prices are 0.3% firmer and silver prices are up 1.1%.

In international markets, spot Brent crude oil prices are up 0.8% at $46.52 per barrel and the yield on the US ten-year treasuries has jumped to 2.21%, from 2.13% on Tuesday – bond yields are generally firmer following a bullish talk by European Central Bank president Mario Draghi yesterday.

Equity markets on Tuesday were weaker, led by tech weakness with the Nasdaq composite closing down 1.6%, the Dow closed down 0.5% at 21,310.66 and the Euro Stoxx 50 closed off 0.7%. US Federal Reserve chair Janet Yellen speaking about rich asset valuations combined with a setback on US president Donald Trump’s healthcare bill seem to have rattled markets. The weakness has flowed through to most of Asia with the Nikkei, Hang Seng, CSI 300 and Kospi down between 0.3-0.4%, while stronger commodity prices gave the ASX 200 a 0.7% lift. Another ransom cyber-attack may well be worrying markets too.

Draghi’s bullish EU focus lifted the euro that has shot up to 1.1377, conversely the dollar index is down at 96.24 – a fresh low for the year. The yen is weaker at 112.33, while sterling and the Australian dollar are stronger at 1.2816 and 0.7606, respectively.

The yuan broke its weaker trend on Tuesday, with the currency rising to 6.8095 and it has gapped higher to 6.8005 this morning. With the currency majors on the move, the other emerging market currencies we follow are little changed.

Today’s economic agenda has data on German import prices that fell 1%, this was worse than the 0.6% decline expected, while UK nationwide house prices climbed 1.1%. Later there is data on EU money supply and private loans, Italian CPI and US data that includes goods trade balance, wholesale inventories, pending home sales and crude oil inventories. Today also sees another flurry of central bank speakers including Draghi, Bank of England governor Mark Carney and Bank of Japan governor Haruhiko Kuroda – see table below for more details.

The base metals are looking brighter across the board with even aluminium joining in with the gains on Tuesday. This morning markets are little changed so we wait to see if there is follow through buying. In normal circumstances we would expect that, but with equity and bond markets showing weakness, we need to see if there is any general risk-off move. Overall, given the emerging firmer trends, we expect prices to work higher but progress may be choppy.

Gold prices are trying to move higher and weakness in equities, bonds and the dollar may well see gold prices firm up more, especially if the cyber-attack gains momentum. Silver is following gold, platinum and palladium are consolidating and look more vulnerable.

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