METALS MORNING VIEW 29/11: Base metals prices consolidate, gold prices little changed on missile test
Base metals prices on the London Metal Exchange are consolidating this morning, Wednesday November 29, with prices ranged between down 0.2% for tin and zinc and up 0.3% for copper, which is at $6,827 per tonne. Volume has been lower than of late with 7,660 lots traded as of 07.02am London time.
This morning’s weaker tone follows a generally negative day on Tuesday, when with the exception of tin that was little changed, the rest closed down by an average of 1.5% - led by a 1.8% fall in copper prices. Concern over a slowdown in China is the main depressing factor.
In precious metals, spot gold prices are up by just 0.1% at $1,295.58 per oz, this despite North Korea test-firing another missile. Silver, palladium and platinum prices are up by between 0.1% and 0.4%. This is after a mixed performance on Tuesday when gold prices were little changed, silver prices were off by 1.1%, platinum prices were up by 0.2% and palladium rallied by 2.1% - leaving the complex to close with average gains of 0.3%.
On the Shanghai Futures Exchange today, the base metals are weaker across the board by an average of 0.9% - ranged between a 1.7% drop in aluminium prices to a 0.3% decline in lead prices, while copper prices are off by 0.9% at 53,150 yuan ($8,049) per tonne. Spot copper prices in Changjiang are down by 0.9% at 53,100-53,220 yuan per tonne and the LME/Shanghai copper arbitrage ratio is firmer at 7.78, compared with 7.77 on Tuesday.
In other metals in China, iron ore prices are up by 2.1% to 512.50 yuan per tonne on the Dalian Commodity Exchange. On the SHFE, steel rebar prices are up by 2.3%, gold prices are 0.1% firmer, while silver prices are off by 0.9%. While the base metals are under pressure on the back of concerns over a slowdown in China, we find it interesting that iron ore and steel rebar prices are strengthening, which makes us think the weakness in the base metals is more about consolidation in high ground, rather than the start of a correction.
In international markets, spot Brent crude oil prices are down by 0.05% at $63.28 per barrel. The yield on US ten-year treasuries is firmer at 2.33%, as is the German ten-year bund yield at 0.35%.
Equities in Asia this morning are generally firmer with gains in the Nikkei (0.49%) and the ASX 200 (0.45%), while the others we follow are little changed: the CSI 300 (+0.01%), the Kospi (-0.05%) and the Hang Seng (-0.04%).This follows strong performances in western markets on Tuesday, where in the United States the Dow closed up by 1.09% at 23,836.71 having set a fresh record high at 23,849.61 and in Europe where the Euro Stoxx 50 closed up by 0.55% at 3,583.49.
The dollar index at 93.08 found some support on Tuesday as it looks as though some progress was made on US tax reform. The euro at 1.1870 is consolidating, as are the yen at 111.47 and the Australian dollar at 0.7588. The sterling is strong at 1.3415 on the back of a breakthrough offer on the Brexit bill.
The yuan at 6.5950 is consolidating, while the other emerging currencies we follow are strengthening, which suggests emerging markets are not overly concerned about the present market set-up, nor the geopolitical situation. It suggests a degree of risk-on, which we are seeing in equities - we wait to see if it returns to the base metals.
Today’s economic agenda is busy with consumer price index (CPI) data out in Germany and Spain, French consumer spending and gross domestic product (GDP), UK data on lending, M4 money supply and US data that includes GDP, GDP prices, pending home sales, crude oil inventories and the beige book. In addition, there is an Organization of the Petroleum Exporting Countries (OPEC) meeting and Bank of England governor Mark Carney, UK Monetary Policy Committee member Sir David Ramsden, US Federal Open Market Committee member William Dudley and US Federal Reserve chair Janet Yellen are speaking.
Base metals prices are for the most part on a back footing as long positions are reduced as prices have become hung up in high ground. We see the pullbacks as consolidation and remain overall bullish basis the fundamentals. As such, we expect range trading to continue. With the broader markets still upbeat, we would not be surprised to see dip buying underpin the metals.
Gold prices are edging higher, we would have expected a bigger reaction to the latest missile test-fire as that is likely to spark more of a concerted reaction against North Korea. As such, we expect gold prices to work higher and for that to underpin strength in the rest of the complex, although palladium prices are showing their independent strength, driven by strong fundamentals.
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