METALS MORNING VIEW 28/09: Some strength emerges in the metals after Thursday’s weakness

Three-month base metals prices on the London Metal Exchange were up across the board with gains averaging 0.4% on the morning of Friday September 28. But this follows a general down day on Thursday, when the complex closed down by an average of 1%.

This morning’s gains are ranged from little changed for aluminium and tin to up by 0.7% for nickel, with copper up by 0.4% at $6,205 per tonne.

Volume has been average with 5,686 lots traded as at 07:13am London time.

In the precious metals, spot gold prices were off by 0.1% at $1,182.95 per oz, while the more industrial precious metals were up between 0.2% for silver and platinum prices and 0.4% for palladium prices. Thursday’s action was polarized with gold, silver and platinum down by an average of 1.1%, while palladium bucked the trend by rising 1.5%.

In China, the base metals prices were divergent with the November zinc, November lead and January tin contracts up by an average of 0.9%, while the November contracts for copper, aluminium and nickel were down by 0.4%, 0.9% and 1% respectively. The November copper contract was at 50,170 yuan ($) per tonne.

Spot copper prices in Changjiang were down by 0.5% at 50,140-50,380 yuan per tonne and the LME/Shanghai copper arbitrage ratio is firmer at 8.09, after 8.07 on Thursday.

In other metals in China, the January iron ore contract on the Dalian Commodity Exchange was down by 1% at 494.50 yuan per tonne. On the SHFE, the January steel rebar contract was down by 2.6%, while the December gold and silver contracts were down by 0.8% and 0.7% respectively.

In wider markets, spot Brent crude oil prices were higher by 0.24% and were recently quoted at $81.48 per barrel. The yield on US 10-year treasuries has firmed to 3.0450%, having been as high as 3.1% on Wednesday. The German 10-year bund yield has weakened and was recently quoted at 0.4800%. The strength in the latter suggests safe-haven buying in Europe after Italy’s government agreed a higher budget, which will put it on collision course with Europe.

Asian equity markets were for the most part stronger on Friday: Nikkei (+1.33%), Kospi (-0.52%), the Hang Seng (+0.10%), the CSI 300 (+0.52%) and ASX200 (+0.43%). This follows a stronger performance in western markets on Thursday; in the United States, the Dow Jones closed up by 0.21% at 26,439.93, while in Europe, the Euro Stoxx 50 was up by 0.48% at 3,449.79.

The dollar index continues to react favorably to the US rate rise with a move up to 95.08 and has done a good job in negating the weakness seen over the past six weeks or so.

With the dollar stronger, the other major currencies we follow are weaker, especially the euro (1.1625) while Italy once again rocks the fiscal boat, sterling (1.3075), the Australian dollar (0.7215) and the yen has dropped through its 113.13-113.16 double bottom and was recently quoted at 113.38.

The yuan has also weakened and was recently quoted at 6.8845, while the emerging market currencies we follow are quite mixed and ranged between consolidating or strengthening. This suggests the latest dollar strength is more about other major currency market weakness and less about fresh emerging currency weakness.

The economic agenda is extremely busy on Friday, with data already out in Japan showing a strong improvement across the board – see table below for details. Data out later in Europe includes French consumer spending, consumer price index (CPI) data from France, Spain, Italy and the European Union, German unemployment and the United Kingdom’s current account, gross domestic product and business investment. US data includes personal income, spending and PCE prices, Chicago purchasing managers’ index (PMI) and revised University of Michigan consumer sentiment and inflation expectations. In addition, UK Monetary Policy Committee member David Ramsden is speaking.

The base metals prices are looking quite diverse, but rally attempts continue to struggle and higher prices are still attracting selling. Conversely, support seems to be in place – although in some metals it is looking more vulnerable than in others. The market action continues to be at odds with the LME data that is showing tighter spreads, some backwardations and across the board steady stock falls, with some stocks getting significantly low.

Overall, in this climate of uncertainty, consumers and would-be buyers may not feel in any hurry to chase the market higher – shorts on the other hand may be more nervous for the reasons mentioned above. As such, we expect choppy trading, especially with China on holiday next week.

Gold prices had been stuck sideways, but that changed on Thursday after the dollar’s rebound sent prices lower again. For once, silver prices are holding up slightly better than gold, as seen by the dip in the gold/silver ratio, while platinum is following silver’s lead. Palladium stands out alone, while its robust performance highlights its strong fundamentals.

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