MORNING VIEW: Base metals prices, boarder markets mixed amid cross currents

Base metals prices on the London Metal Exchange and Shanghai Futures Exchange were mixed, although copper prices on both exchanges remain strong this morning, Tuesday February 23, while tightness on the LME dominates.

There are cross currents flowing through the market; sentiment is strong while people look forward to a super-charged economic recovery once vaccines allow a return to a more normal way of life, but inflation expectations are on the up and rising bond yields could be the nail on the road that punctures the high-pressure rally.

  • Asian-Pacific equities are mostly firmer and have shaken off the tech and Bitcoin weakness seen in western markets on Monday.
  • US 10-year treasury yields continue to hold gains

Base metals
LME three-month base metals prices were mixed this morning, with copper ($9,187 per tonne), nickel ($19,585 per tonne) and zinc ($2,902 per tonne) up by 0.8%, 0.3% and 0.5% respectively, while aluminium ($2,168 per tonne), lead ($2,158 per tonne) and tin ($26,730 per tonne) were down by 0.3%, 0.5% and 0.6% respectively.

LME volume as of 6.27am London time was higher than average at 12,521 lots, but almost half of what it was a similar time on Monday (23,972 lots). But copper volume at 7,698 lots was almost as high as Monday’s 8,885 lots, highlighting that copper remains in the spotlight.

The most-traded base metals contracts on the SHFE were more up than down on Tuesday, with April copper up the most with a 3.4% gain to 68,320 yuan ($10,557) per tonne, March lead was up by 0.3%, while April aluminium and tin were both up by 0.2%. The April contracts for nickel and zinc were both down by 0.3%.

Precious metals

Despite stronger bond yields, spot gold prices have continued to rebound off recent lows and were this morning up by 0.1% from yesterday’s close and were recently quoted at $1,811.42 per oz, compared with $1,790.96 per oz at a similar time on Monday. Palladium was little changed at $2,402.10 per oz, while silver ($28.06 per oz) and platinum ($1,266.40 per oz) were both down by 0.5%.

Wider markets
The yield on US 10-year treasuries remains firmer on Tuesday and was recently quoted at 1.37%, unchanged from at a similar time on Monday.

Asian-Pacific equities were mixed this morning: the Hang Seng (+1.22%), the ASX 200 (+0.86%), the CSI 300 (-0.32%) and the Kospi (-0.31%), while the Nikkei was closed.

The US Dollar Index’s has resumed its downward trend and was recently quoted at 90.02, this after being at 90.47 at a similar time on Monday.

With the dollar weaker, the other major currencies were firmer: the euro (1.2170), sterling (1.4064), the Australian dollar (0.7910) and the yen (105.18).

Key data
Data already out on Tuesday provided an update on the United Kingdom’s employment situation; the claimant count fell by 20,000 in January, after a drop of 20,400 in December, the average earnings index was up by 4.7%, after a 3.7% rise previously, but the unemployment rate edged up to 5.1%, from 5%.

Later there is data on the European Union’s consumer price index (CPI), UK realized sales, US house prices, consumer confidence and the Richmond manufacturing index.

In addition, US Federal Reserve Chairman Jerome Powell is scheduled to testify on the semiannual monetary policy report before the Senate Banking Committee.

Today’s key themes and views
The metals remain generally upbeat on the back of prospects for a nearby Covid-19 recovery and the bigger underlying long-term electrification theme.

For copper and tin, the immediate driving forces seem more to do with the tightness on exchange. Nonetheless, we should expect dips along the way and rising bond yields may be a trigger for some to pause for thought, which we saw in the tech sector on Monday. Also, even with the strong long-term electrification and decarbonization themes running, there can still be meaningful counter trend moves along the way, so there is little room for complacency.

Gold prices are seeing some uplift, no doubt helped by the weaker dollar and with the broader commodity sector on the rise. Also, with some concerned that rising bond yields may upset confidence in equities, maybe gold now offers a cheaper haven, especially given more talk of inflation.

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