METALS MORNING VIEW 30/05: Metals prices under pressure after risk-off spreads

Three-month base metals prices on the London Metal Exchange were down across the board by an average of 0.4%, with copper prices off by 0.9% at $6,768 per tonne.

Volume has been heavy with 12,850 lots traded as of 07:53 am London time.

This follows a mixed performance on Tuesday when copper and lead prices were off 0.5% and 0.3% respectively, aluminium prices closed up by 0.1% and the rest were up either side of 0.8%.

In precious metals this morning, gold and silver prices were down by 0.2% and 0.1% respectively, while platinum prices were up by 0.2% and palladium prices were up by 0.4%.

In China, base metals prices on the Shanghai Futures Exchange were mixed, with copper prices off by 0.9% at 51,100 yuan ($7,945) per tonne, aluminium and lead prices lower by 0.4% and zinc, nickel and tin prices up by 0.1%, 0.5% and 0.7% respectively.

Spot copper prices in Changjiang were down by 0.5% at 51,020-51,200 yuan per tonne and the LME/Shanghai copper arbitrage ratio was firmer at 7.55.

In other metals in China, iron ore prices were down 0.7% at 456.50 yuan per tonne on the Dalian Commodity Exchange. On the SHFE, steel rebar prices were up by 1.3%, while gold prices were up by 0.3% and silver prices were down by 0.1%.

In wider markets, spot Brent crude oil prices were down by 0.14% at $75.28 per barrel this morning, now considerably down from their peak of $80.49 a barrel on May 22. The yield on US 10-year treasuries has fallen further to 2.8371% and the German 10-year bund yield has stabilised at 0.32% – yields have fallen as haven buying has picked up on concerns over Italy’s political uncertainty.

Equity markets in Asia were weaker on Wednesday: Nikkei (-1.52%), Hang Seng (-1.57%), CSI 300 (-2.07%), the ASX 200 (-0.48%) and Kospi (-1.96%). This follows a weaker performance in western markets on Tuesday, where in the United States the Dow Jones closed down by 1.58% at 24,361.45, and in Europe where the Euro Stoxx 50 closed down by 1.56% at 3,428.14.

The dollar index was recently at 94.67, off from Tuesday’s high of 95.03, with the index running into resistance ahead of the 95.15 peak from October last year. The dollar is holding up well considering the fall in treasury yields, but that highlights the haven buying.

Most of the other major currencies that have been weaker on the back of the dollar’s strength are consolidating this morning, while the yen that had been strengthening is also consolidating.

The yuan has weakened further – it was recently quoted at 6.4303 – but most of the emerging market currencies we follow are off their lows, with the weaker US treasury yields no doubt a positive factor in an overall risk-off environment.

Today’s economic agenda is busy. Data out already includes Japan’s retail sales that climbed 1.6% after a prior reading of 1%, Japan’s consumer confidence climbed to 43.8, from 43.6. European data showed German retail sales climbed by 2.3%, after a 0.4% fall previously, German import prices climbed 0.6%, having been flat, French consumer spending dropped 1.55, having previously climbed 0.2% and France’s preliminary gross domestic product (GDP) rose 0.2% in the first quarter, down from 0.3% in the fourth quarter of last year.

Data out later includes German unemployment change, with US data on ADP non-farm unemployment change, preliminary GDP and GDP prices, goods trade balance, wholesale inventories and the US Federal Reserve’s Beige Book.

The base metals initially held up well in the face of the risk-off tone that the Italian political impasse caused, but it now looks as though some risk is being taken out of the metals, led by another sell-off in copper. We expect trading to remain volatile but the metals are likely to take their next direction from the purchasing manager’s index (PMI) data that is released on Thursday and Friday.

Gold prices ran up last week on news that the summit between the US and North Korea was cancelled and prices are now consolidating. Interestingly, the weaker treasury yields and pick-up in haven demand in the dollar, US treasuries and yen, are not lifting gold prices as well. But while the precious metals are not picking up haven buying, neither are they being affected by risk-off.

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