METALS MORNING VIEW 29/03: LME base metals prices buoyed by positive US-China trade headlines

Positive headlines regarding continuing US-China trade talks have fueled a recovery in global risk sentiment so far on Friday March 29, subsequently providing support to three-month base metals prices on the London Metal Exchange.

Nickel and zinc led the complex higher, both up by 0.8%, while copper followed close behind with a gain of 0.7%. Lead, tin and aluminium saw more moderate increases this morning, with rises of 0.5%, 0.4% and 0.3% respectively. On average, the complex was up by 0.6%.

Market participants have been more active this morning with a total of 5,448 lots having traded on LME Select as at 7.01am, compared with the 4,325 lots traded at a similar time on Thursday.

The improved global risk sentiment has dented investors’ appetite for haven assets, leading to a bout of selling across the spot precious metals.

The spot gold price was down by 0.3% at $1,287.26 per oz from the previous day’s close, silver weakened by 0.2% to $14.99 per oz, platinum dipped by 0.2% to $839 per oz, while palladium is the worst performer of the complex with a drop of 1.3% to $1,339.60 per oz as it undergoes a significant correction.

In futures, the most-traded Nymex palladium contract made headlines on Thursday with a decline of 7.4% to $1,303.20 per oz, but some short-covering activity has emerged and the contract was recently trading at $1,318.20 per oz.

In China, positive trade headlines have had a similar effect on base metals prices on the Shanghai Futures Exchange, with the complex up by an average of 0.5% on Friday. The May copper, tin and zinc contracts led the way higher with increases of 1.3%, 1% and 0.9% respectively, while a milder gain of 0.1% was seen in the May aluminium contract. The May lead and nickel contracts bucked the firmer showing by their peers to drop 0.4% and 0.1% respectively.

The spot copper price in Changjiang edged higher to 49,660-49,820 yuan ($7,371-7,395) per tonne on Friday morning, up from 49,350-49,530 yuan per tonne on Thursday, while the LME/Shanghai copper arbitrage ratio was at 7.49 after a reading of 7.43 yesterday.

In other metals in China, selling persisted in the SHFE’s June gold and silver contracts on Friday, with both down by an average of 1.8%. The most-traded May iron ore contract traded on the Dalian Commodity Exchange was up by a solid 3.6%, last trading at 632 yuan per tonne, while the SHFE’s most-traded May rebar contract secured a gain of 1.2% to 3,749 yuan per tonne.

In wider markets, the Brent crude oil price was holding up well at $67.95 per barrel after being at $67.46 per barrel at a similar time on Thursday.

Meanwhile, rising bond yields have started to show sign of easing, with the German 10-year bond yield edging higher but still trading in negative territory at -0.0600-0.070 – a contrast to Thursday’s -0.0900.
The yield on US 10-year treasuries has recovered by 0.58% this morning to 2.4059.

Asian equity indices were in risk-on mode on Friday, with China’s CSI300 Index leading the charge higher with a gain of 3.86%. More moderate gains were seen in Hang Seng (+1.01%), the Nikkei (+0.82%) and Topix (+0.56%).

Western equity markets gave a similarly positive performance overnight; the Dow Jones Industrial Average rose by 0.36%, the S&P 500 Index was up by the same amount while the Nasdaq was up by 0.34%. Some of this positivity has filtered through to European markets this morning with the Dax rising by 0.5%, the FTSE up by 0.4% and the CAC40 up by 0.6%.

The dollar index has maintained its upward trend and was recently at 97.25, a contrast to yesterday’s 96.95. This has put pressure on the euro (-0.01%) at 1.1229 while the Japanese Yen has given up all of the gains, edging toward 110.80 at the time of writing. Sterling remains under selling pressure amid continued uncertainty surrounding Britain’s exit from the European Union, with sellers attempting to take the British currency below the all-important 1.3000 level while the government mulls over plans for a new Brexit vote.

It is a busy day for data on Friday and releases already out show a positive reading for Japanese housing starts, up by 4.2% against an expected decline of 0.1%.

Later there is a raft of European releases that include German import prices, retail sales and unemployment change and French consumer spending and preliminary consumer price index data. The UK’s final gross domestic product and account data are also scheduled.

In US data, we have the core PCE price index, personal spending, personal income, the Chicago purchasing managers’ index and new home sales of note. The latter two releases should provide the market with additional information as to the health of the US economy.

Three-month base metals prices on the LME are on course to secure some positive first-quarterly gains and recover from the gloomy end to 2018. Much of the tailwinds supporting were positive seasonal factors but optimism stemming from US-China trade negotiations also helped.

Tight fundamentals among several of the base metals contributed too, especially in the likes of nickel, tin, zinc and copper while aluminium and lead experienced more challenging backdrops.

A stronger dollar index and deteriorating technical configuration has triggered long overdue profit-taking activity in the precious metals complex. Gold and silver prices are consolidating well but may have a bit more downside to go. Platinum meanwhile is holding up above $840 per oz but palladium’s price action is likely to stay volatile in light of the recent sharp sell-off.

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