METALS MORNING VIEW 29/11: Metals prices consolidate gains after Fed comments, focus shifts to G20

Three-month base metals prices on the London Metal Exchange were being pushed and pulled by cross currents this morning, Thursday November 29. Nickel, lead and tin showed gains averaging 0.4%, while copper, aluminium and zinc were down by an average of 0.4%. Copper was off by 0.4% at $6,230 per tonne.

Volume across the complex has been average with 5,189 lots traded as at 7.33am London time.

Wednesday’s more dovish tone from US Federal Reserve chairman Jerome Powell, saying that the central bank may soon be in a position to pause the interest rate hikes, had boosted confidence in the base metals market. As a result, base metals prices on the LME closed up with average gains of 1.4% on Wednesday, while equites rebounded, yields fell and the dollar weakened.

With the dollar weaker, the precious metals were for the most part firmer this morning; gold, silver and platinum prices were up by an average of 0.5%, with gold at $1,226.80 per oz, while palladium prices were consolidating.

The market is looking more confident this morning due to Wednesday’s Federal Reserve comments, but likewise it is still nervous about what developments there will be on trade at this weekend’s Group of Twenty (G20) summit, and so trade issues are likely to dominate for the rest of the week.

In China this morning, most of the January contract prices for base metals were firmer; led by a 1.2% rise in copper to 49,550 yuan ($7,124) per tonne, zinc, lead and nickel were up by an average of 0.7%, while aluminium and tin prices were down by 0.2%.

Spot copper prices in Changjiang were up by 1.3% at 49,670-49,860 yuan per tonne and the LME/Shanghai copper arbitrage ratio was weaker at 7.95 after 7.99 on Wednesday, suggesting the LME is leading the stronger tone.

In other metals in China, the January iron ore contract on the Dalian Commodity Exchange was up by 1.3% at 476 yuan per tonne. On the SHFE, the January steel rebar contract was off by 0.2%.

In wider markets, spot Brent crude oil prices were firmer this morning, up by 1.01% at $59.16 per barrel – the recent low being $58.42 per barrel. The yield on US 10-year treasuries was considerably weaker at 3.0180%, while the German 10-year bund yield was also weaker at 0.3355%.

Asian equity markets were mixed on Thursday: the Nikkei (0.39%), the ASX 200 (0.58%), the Kospi (0.28%), the Hang Seng (-0.92%) and the CSI 300 (-1.3%).

This follows stronger performances in western markets on Wednesday; in the United States, the Dow Jones closed up by 2.5% at 25,366.43, while in Europe, the Euro Stoxx 50 was up by 0.06% at 3,168.29. Powell’s comments came too late in the day to impact European equities, plus the European auto sector will still be concerned over whether President Donald Trump will impose a 25% tariff on imported vehicles.

The dollar index is weakening on the back of the Federal Reserve comments and was recently quoted at 96.65 – we wait to see if the comments turn out to be a trend changer for the dollar. Needless to say the other major currencies are firmer following the comments: yen (113.28), euro (1.1394), the Australian dollar (0.7330) and sterling (1.2831).

The yuan remains in low ground and was recently quoted at 6.9435, while the other emerging market currencies we follow are firmer due to the weaker dollar.

The economic agenda is busy – data already out shows French gross domestic product (GDP) growth unchanged at 0.4% and Spanish consumer price index (CPI) at 1.7%. Later there is data on German unemployment, UK lending and US releases that include personal income, spending and prices, initial jobless claims, pending home sales and natural gas storage. In addition, European Central Bank President Mario Draghi is speaking and this evening the latest US Federal Open Market Committee (FOMC) meeting minutes are released.

Wednesday saw the base metals gain some momentum which has boosted lead, aluminium, zinc and tin off recent lows, while nickel prices remain around the lows and copper is looking the best to try to break higher. Copper does, however, face considerable resistance on the charts between $6,296 and $6,394 per tonne – so with the uncertainty surrounding G20, we expect the upside will remained capped until the outcome of G20 is known.

Gold, like copper, is well placed to push higher and if there is follow-through enthusiasm about Powell’s comments then a weaker dollar could underpin a stronger gold price. Silver looks set to follow gold’s lead, while the platinum group metals may hold back as the auto market may be about to face stronger headwinds from tariffs.

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