MORNING VIEW: Base metals fall despite robust broader markets

Weakness was evident across the base metals in London and Shanghai on the morning of Tuesday June 15 despite pre-market Western equity index futures driving higher and high volumes traded on the London Metal Exchange.

  • 14,205 lots had been traded on the LME by 5.52am London time compared with typical volume of 6,000 lots at this time
  • Markets seem to be nervous about the measures China’s authorities may take to dampen down inflationary pressures
  • …after last week’s China producer price index (PPI) reached 9%, its highest since September 2008
  • Geopolitical tensions rise - Nato and G7 leaders warn of China’s global ambitions

Base metals
LME three-month base metals prices fell by an average of 1.8% this morning, led by a 2.7% fall in nickel ($17,980 per tonne), with only aluminium ($2,468 per tonne) and lead ($2,183 per tonne) down by less than 2% (0.8% and 1% respectively).

Copper was down by 2.1% at $9,743 per tonne, marking a continued fall since its record high of $10,747.50 per tonne on May 10.

The most-active Shanghai Futures Exchange base metals contracts were down across the board, with losses averaging 1.3%, led by a 2.2% fall in July tin, with July copper down by 1.7% at 69,900 yuan ($10,912) per tonne.

Precious metals

Spot precious metals were mixed - gold and silver slid by 0.1% and 0.7% at $1,864.57 per oz and $28.67 per oz respectively while platinum was little changed at $1,162.50 per oz and palladium was up by 0.3% at $2,759.50 per oz.

Wider markets

The yield on US 10-year treasuries stabilized at 1.48% compared with 1.46% at a similar time on Monday. Monday’s level was the yield’s lowest since March 2021.

Traders seem confident that the United States Federal Reserve will give the economy enough slack to show that any inflationary pressures are transitory but we should get a clearer picture on Wednesday evening when the Federal Open Market Committee (FOMC) reports.

Asia-Pacific equities were mixed on Tuesday - the Nikkei was +1.03%, the Kospi +0.15%, the ASX 200 +0.93%, the Hang Seng -0.72% and the CSI 300 -1%. Chinese equities seem to be bucking the trend following the rise in geopolitical tensions with the West.

The US dollar index continued to hold onto last Friday’s gains - on Tuesday morning, it was at 90.45 compared with 90.56 at a similar time on Monday. The recent range has been 89.53-90.63.

Most of the major currencies were consolidating this morning: Sterling (1.41), the Australian dollar (0.77) and the euro (1.21), while the Japanese yen (110.03) weakened.

Key data
There is a busy economic agenda on Wednesday - key data already published shows that German final CPI climbed by 0.5% in May, compared with a 0.7% rise in April, and the United Kingdom’s employment report beat or was in line with expectations (see table below).

Later today, data will be released on French CPI and a swathe of US data will be released including retail sales, PPI, Empire State manufacturing index, industrial production, capacity utilization, business inventories, housing market index and the Treasury International Capital (TIC) long-term purchases.

Bank of England governor Andrew Bailey is scheduled to speak at 1.15pm London time.

Today’s key themes and views

Overhead resistance from recent high ground on most of the base metals has again proved effective - prices have fallen, although copper is the only metal to set fresh multi-week lows this morning. Tin prices set fresh multi-year highs on Monday at $31,850 per tonne but prices have fallen this morning.

Of late, we have commented on the continued strength of the base metals but we have warned of potential deeper corrections. With copper now leading on the downside, we will wait to see whether this latest show of weakness has legs. Headwinds for the base metals include the firmer dollar, China’s interest in curbing inflationary pressures and the prospects for another China/West spat, which may be worrying investors in case it turns into another trade war with China.

The background for gold is looking bullish due to inflationary pressures and the potential for a broad-based correction. For now, only the base metals are showing weakness; non-Chinese equities are not. With gold and the yen on a soft footing, there is little demand for havens at present. This, combined with the firmer dollar, may keep gold subdued for a while.

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