METALS MORNING VIEW: Metals prices remain upbeat, upward momentum gathers pace

Base metals prices are firmer by an average of 0.3% this morning, Wednesday January 11, with three-month copper prices leading with a 0.6% gain to $5,778 per tonne, aluminium prices are up 0.5%, zinc prices are up 0.4%, nickel prices are up 0.2%, while the rest are little changed.

Volume has been slightly below average with 4,120 lots traded as of 06:22 GMT. Precious metals prices are also firmer this morning with gains ranged between 0.2% for spot gold prices, which are at $1,189.10 per oz and 0.8% for palladium prices at $765 per oz.

These gains built on Tuesday’s stronger performance when base metals prices closed up an average of 1.7%, where lead and copper led the advance with gains of 3.7% and 2.8%, respectively. Precious metals prices were mixed on Tuesday with silver prices the main gainers, they were up 1.2% at $16.77 per oz, and spot gold prices were up 0.3%, while the PGMs were little changed.

In Shanghai this morning, the base metals are for the most part up, with average price gains of 1.2%, led by a 2.6% rise in March copper prices to 46,960 yuan per tonne, aluminium prices are up 1.9%, lead and zinc prices are up 1.3%, nickel prices are up 0.9%, while tin is bucking the trend with a 0.6% decline. Spot copper prices in Changjiang are also up 2.6% at 46,690-46,890 yuan per tonne – the forward copper curve remains in a contango, while the LME/Shanghai copper arb ratio is at 8.14.

In other metals in China, May iron ore prices on the Dalian Commodity Exchange are up 3.7%, on the Shanghai Futures Exchange, steel rebar is up 2.2%, silver prices are up 0.8% and gold prices are up 0.2%. In international markets, spot Brent crude prices are up 0.1% at $53.69 per barrel having weakened recently on the back of concerns of a US producer response to the higher prices.

Equities were under light pressure yesterday with the Euro Stoxx 50 and Dow closing down 0.1% and 0.2% on Tuesday, in Asia this morning the mood is more upbeat with the Nikkei up 0.3%, the Hang Seng is up 0.8%, the ASX 200 is up 0.2%, the Kospi is up 1.5%, while the CSI 300 is bucking the trend with a 0.4% fall.

In FX, the dollar index is consolidating around 102.80 – the recent range has been 103.82 to 101.30. The euro is also consolidating off recent lows, recently quoted at 1.0560, the yen is at 116.00, and the sterling is weak at 1.2160, while the Australian dollar at 0.7380 is rising. The yuan is weaker at 6.9231 – after the People’s Bank of China (PBoC) intervention last week the yuan climbed to around the 6.7800, so it seems its path of least resistance is to the downside and that could raise friction with the new US administration, although at least the PBoC has been seen to be intervening.

Emerging market currencies are for the most part firmer, which suggests little concern ahead of the US administration handover, it also reflects the stronger commodity markets, although the Mexican peso is weakening further, which does highlight stress about Donald Trump taking charge. Either before, or after the inauguration, we expect increased volatility in currencies, especially emerging market ones.

Economic data showed Japan’s leading indicators edged higher to 102.7%, it has been trending higher since May 2016 – later there is a host of UK industrial, construction and GDP data, plus Bank of England Governor Mark Carney is speaking at 2:15 pm GMT. US data includes crude oil inventories, but the focus is likely to be on president-elect Donald Trump’s press conference at 16:00 GMT, US Federal Open Market Committee member William Dudley is then speaking at 18:20 GMT.

Base metals prices are looking stronger as their new year rallies extend – given better economic data, especially yesterday’s Chinese PPI data, it is not surprising that prices are rallying as traders position themselves as the new year gets underway. Fundamentally we like the metals’ outlooks, but we are wary that the political scene may now heat-up as president-elect Donald Trump takes the helm so we should be braced for some pick-up in volatility – we may get a hint at what is to come this afternoon when he holds a press conference. For now we would run with the upward momentum, but be ready for some turbulence.

The run-up in gold prices seems to be on the back of two issues – a pick-up in inflationary expectations and a pick-up in some haven buying ahead of the changeover in the US administration. Silver and platinum are following, while palladium has been seeing independent strength.

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