MORNING VIEW: Base metals mixed ahead of US employment report and next week’s trade talks

Weak data out of the United States, on top of generally weak data globally, is keeping most markets rangebound and the focus today will be on the US employment report.

A weak number could give equities a boost as it would suggest easier monetary policy, but weak data does not bode well for manufacturing.

In addition, the metals are likely to now start to focus on next week’s US-China trade talks – whether optimism leads to a pick-up in sentiment, or whether investors decide to wait and see, remains to be seen.

  • Equities in Asia are mixed, with Hong Kong and South Korea lower, while Australia and Japan are showing gains.
  • Gold prices are back above $1,500 as the dollar pulls back from high ground
  • Volume on the LME is low with 1,809 lots traded as of 06.57 am London time

Base metals
The three-month LME base metals prices are mainly lower this morning, Friday October 4, with tin untraded, while the rest are down by an average of 0.2%, led by a 0.7% fall in copper prices that were recently quoted at $5,614 per tonne.

Notwithstanding today’s price action, lead prices are looking robust with prices holding above $2,100 per tonne and recently quoted at $2,127 per tonne, with nickel prices also buoyant at $17,630 per tonne and not showing any sign that increased exports of nickel ores from Indonesia are flooding the market yet.

China remains closed, its first day back after the National Day holidays will be Tuesday October 8.

Precious metals
The spot gold price, having broken lower on Monday to set a low at $1,459.18 per oz on Tuesday, rebounded to a high of $1,519.55 on Thursday – it was recently quoted at $1,507.81 per oz. This highlighting that the markets remain nervous over the current state of affairs in the geopolitical arena with the unrest in Hong Kong, Brexit and the downward spiral in global growth. Silver continues to follow, platinum is consolidating after a correction and even palladium has turned back from record highs and was last at $1,655.50 per oz.

Wider markets
Weaker economic data is also weighing on oil, with the spot Brent crude oil price consolidating above Thursday’s low at $56.13 per barrel and was recently quoted at $57.91.

In line with the pick-up in haven demand the yield on benchmark US 10-year treasuries has weakened – it was recently quoted at 1.5318%, compared with 1.6529% at a similar time on Wednesday. The German 10-year bund yield has also eased and was recently quoted at -0.5980%, compared with -0.5500% on Wednesday.

Asian equities were mixed on Friday: The Nikkei was up by 0.32%, the ASX 200  up 0.37%, the Hang Seng was 1.39% lower and the Kospi fell by 0.55%.

This follows a stronger performance in Western markets on Thursday, where in the US, the Dow Jones Industrial Average closed up by 0.47% at 26,201.04; in Europe, the Euro Stoxx50 closed up by 0.12% at 3,417.37.

The dollar index is weaker and was recently quoted at 98.89, after its push up to fresh multi-year highs at 99.67 on Tuesday – it was last this high in May 2017 and the peak in 2017 was 103.82. The overall trend is upward.

As the dollar is on a back footing, the other major currencies we follow are firmer: the Australian dollar (0.6750), sterling (1.2344), the yen (106.78) and the euro (1.0972).

Key data
Friday’s economic data includes data on Japan’s consumer confidence that dipped to 35.6 in September, from 37.1 in August. In Europe, Spanish unemployment change climbed 13,900 in September, which was better than the 37,600 expected, and later there is data on UK construction, US ADP non-farm employment change and crude oil inventories.

In addition, Federal Open Market Committee John Williams is speaking.

Today’s key themes and views

Against the backdrop of weak economic data it is hard to be bullish for the base metals – for those metals that have been range bound, we expect more sideways trading, but those that have been more directional on the upside, notably nickel and lead, may struggle to hold on to their gains – this is especially so for nickel given Indonesia is likely to ramp up exports ahead of the ban in nickel ore exports that starts in 2020. For the base metals as a whole, we think the overall direction will be driven by how the next round of US/China trade talks go – until then economic data is likely to set the tone.

We have viewed gold as being vulnerable in the short term because it was looking toppy on the charts, but it was interesting that despite breaking lower on Monday, prices did not stay down for long. That said, they are still looking vulnerable. There are still many global issues to be settled and until they are, demand for havens is likely to remain high but the market may now be in limbo until the trade talks start to set the direction again.