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Our assessment of global risk sentiment remains fairly weak and highly dominated by negative macro events. The simmering US-China trade altercation continues to undermine appetite for risk assets.
Base metals The positive rebound momentum from late last week is wearing off and the upside is capped, meaning most metals prices remain prone to selling pressure in the very short term. Three-month base metals prices on the London Metal Exchange were sluggish on Monday, with three-month copper and tin little changed while zinc was down by 0.3%. The rest of the complex managed to eke out small gains, with aluminium up 0.2%, and nickel and lead both up 0.1%. In China, base metals prices on the Shanghai Futures Exchange were down across the board on Monday, with prices down by an average of 0.6%, led by a strong decline of 1.4% in the July zinc contract. This was followed by a 0.6% decline in the July nickel contract, while the July aluminium was down 0.5% and the July lead and September tin prices were down by 0.4%. July copper saw a milder decline of 0.3% and at the time of writing, it was trading at 47,730 yuan ($6,947) per tonne.
Spot copper prices in Changjiang were down by 0.3% at 47,700-47,860 yuan per tonne and the LME/Shanghai copper arbitrage ratio was last at 7.85.
Precious metals Renewed selling interest in the precious metals complex has pushed the spot silver price to a new 2019 low of $14.39 per oz while spot gold price remained under selling pressure this morning, down 0.1%. Platinum and palladium prices fared better, with gains of 1% and 0.5% respectively this morning amid dip-buying interest on both metals.
On the SHFE, the June gold contract was down by 0.5% while the December silver contract was off by 0.8%.
Wider markets In wider markets, geopolitical tensions in the Middle East have pushed the spot Brent crude oil price higher this morning at $73.27 per barrel, compared with last week’s low of $69.70 per barrel.
The yield on benchmark US 10-year treasuries has stabilized at 2.4011% and edged mildly higher from last week’s close of 2.3935%. There was little change on the German 10-year bund yield which remains in negative territory and was recently quoted at -0.1000%.
Asian equity markets were mixed this morning: Nikkei (+0.24%), Hang Seng (-0.63%), CSI 300 (-0.85%) and the ASX 200 (+1.74%).
US major indices were negative across the board at the close of trading on Friday May 17, with the Dow down 0.38%. S&P500 down 0.58% and with Nasdaq leading the decline, down 1.04% due to fragile global risk sentiment.
Currencies The dollar index maintained its upward trend and was recently quoted at 98.00, a contrast to last Monday’s low of 97.03. Sterling (1.2745) and the Australian dollar (0.6930) both saw some gains this morning, up 0.19% and 0.84% respectively. Meanwhile, the Japanese yen was weaker at (110.08) and the euro at (1.1160) is almost unchanged from Friday’s close of 1.1158.
The yuan continues to weaken at 6.9119, compared with around 6.7100 in mid-April before the escalation in the US-China trade dispute.
Key data Data out already on Monday showed Japan’s preliminary GDP price index come in line at 0.2% while preliminary GDP came in better than expected at 0.5% against the -0.1% expected. The revised industrial production number from Japan also fared better, down 0.6% instead of the expected decline of 0.9%. Other key data due out on Monday includes the latest producer price index numbers from Germany and the Buba Monthly Report. This is followed by speeches by US Federal Reserve chairman Jerome Powell and the country’s Federal Reserve Governor Richard Clarida today.
Today’s key themes and views There is very little to be bullish about as selling interest has returned to the base metals complex this morning. There are growing geopolitical tensions between the US and Iran while the North American country’s trade relations with China have deteriorated. Tight backwardations in the nearby spreads for LME zinc, tin and nickel could put off fresh shorts but new materials returning to LME-approved sheds could cap any rebound momentum. Given the highly uncertain macro backdrop, LME copper and lead prices will remain under pressure in the short term while the LME aluminium price is generally in tandem with broader sentiment which remains weak in the short term.
Gold and silver prices are weak but both metals are finding some support near today’s low. A full military confrontation between the US and Iran could spark a major run in haven assets and a further sell-off in global equity indices should fuel a run to safety too.