MORNING VIEW: Base metals prices, broader markets mixed; participants await direction from more PMI data

Markets were mixed this morning, Thursday September 3, with the base metals prices on the London Metal Exchange generally firmer, albeit in fairly light volumes.

Markets are still underpinned by the prospect of more stimulus from the United States, once Congress can agree on a figure, but some of the metals are starting to look a bit tired

  • China’s Caixin services purchasing managers’ index (PMI) at 54 showed continued expansion, albeit slightly weaker than July’s 54.1 reading.
  • Dollar’s rebound off recent lows is a potential headwind.
  • Once PMI data is out, the markets are likely to focus on Friday’s US employment report.

Base metals
Three-month base metals prices on the LME were up by an average of 0.1% this morning, with nickel ($15,575 per tonne) down by 0.9%, copper little changed at $6,688 per tonne, while the rest were up between 0.2% for aluminium ($1,794.50 per tonne) and 0.6% for tin ($18,455 per tonne).

Trading volume has been below average with 4,509 lots traded as of 6am London time.

The most-traded base metals contracts on the Shanghai Futures Exchange were mixed, with prices ranged between down 0.4% for November nickel and October lead and up 1.4% for November tin. October copper was down by 0.2% at 52.080 yuan ($7,612) per tonne.

Precious metals
Spot gold prices were weaker this morning, down by 0.2% at $1,938.41 per oz, with spot silver down by 0.6% at $27.25 per oz, while platinum ($908.50 per oz) was up by 1.1% and palladium ($2,258.50 per oz) up by 0.6%. This after the precious metals as a whole were down by an average of 2.6% on Wednesday.

Wider markets

The yield on US 10-year treasuries was weaker at 0.66% this morning, after being at 0.68% at a similar time on Wednesday morning. The yield has been drifting lower all week.

Asian-Pacific equities were mixed this morning: the CSI 300 (-0.09%), the Hang Seng (-0.44%), the Kospi (+1.21%), the Nikkei (+1%) and the ASX 200 (+0.76%)

The dollar index’s rebound continues this morning; it was recently quoted at 93, this after 92.43 at a similar time on Wednesday and after setting a two-year low at 91.73 on Tuesday.

With the dollar firmer, the other main currencies were in retreat this morning: the euro (1.1800), the Australian dollar (0.7306), the yen (106.32) and sterling (1.3296).

Key data
In addition to China’s Caixin PMI data mentioned above, there is further PMI services data out across Europe and the US later today.

In addition, there is data on the European Union’s retail sales and US releases that include Challenger job cuts, initial jobless claims, revised non-farm productivity, revised unit labor costs and the trade balance.

In addition, Bank of England governor Andrew Bailey is scheduled to speak about the future of cryptocurrencies.

Today’s key themes and views

On balance, the base metals are looking a bit toppy; lead and copper had already started to look so in recent days and now the recent run-up in the others seem to have stalled, at least for now. This may just be in response to the firmer dollar, but the danger is if they have run out of upward momentum then profit-taking may well emerge. If they do sell-off then the market should get a good feel for how strong underlying bullishness is by seeing how far they fall and how long they stay down for.

Given the strong rises in the base metals prices in recent quarters, a lot of good news is probably already baked in and therefore consolidation and set-backs should be expected.

Gold prices tried higher on Monday and Tuesday, but have pulled back since. The rebound in the dollar will be a headwind, as we said in Wednesday’s report. We expect more choppy trading in gold while the market consolidates.

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