MORNING VIEW: Base metals prices consolidate gains after Monday’s double dose of positivity

Base metals prices on both the London Metal Exchange and Shanghai Futures Exchange were mainly lower this morning, Tuesday November 10, while prices consolidated after Monday’s double dose of positive news - that of Joe Biden winning the US presidential election and Pfizer announcing progress toward a potential Covid-19 vaccine.

  • Asian Pacific equities mainly higher on the back of the vaccine news…
  • …but China’s CSI 300 bucked the trend
  • Gold is rebounding after Monday’s $100-per-oz correction

Base metals

Three-month base metals prices on the LME were weaker across the board this morning, down by an average of 0.4. This was led by a 0.9% fall in nickel ($15,650 per tonne), but that was after nickel stormed higher on Monday closing with a 2.9% gain. Copper was down by 0.6% at $6,893 per tonne.

In early trading on Monday the base metals reacted positively to Biden winning the US presidential election and at their highs prices were up by 2% on average, but after the initial euphoria on the vaccine news, there seemed to be some rotation out of metals and into equities, with the EuroStoxx 50 closing up by 6.4% and the Dow Jones Industrial average closing up by 2.96% on Monday.

The most-traded base metals contracts on the SHFE were also for the most part weaker this morning, down by an average of 0.1%. December nickel bucked the trend with a 0.8% gain while it followed Monday’s strong performance on the LME, and December lead was unchanged. The rest were down between 0.1% for December aluminium and 0.6% for December copper that was at 51,700 yuan ($7,812) per tonne.

Precious metals

The precious metals complex was rebounding this morning, up by an average of 0.3%, this after an average fall of 3.1% on Monday. Gold was recently quoted at $1,883.40 per oz, having dropped to a low of $1,851 per oz on Monday.

Wider markets
The yield on US 10-year treasuries has leapt higher and was recently quoted at 0.92%, this after 0.81% at a similar time on Monday.

Asia-Pacific equities were mainly stronger this morning: the ASX 200 (+0.66%), the Hang Seng (+0.35%), the Nikkei (0.26%) and the Kospi (+0.23%), while the CSI (-0.81%) bucked the trend. The relatively small reaction in Asian-Pacific markets, compared with western markets on Monday, suggests they have had more time to think about the implication of the vaccine news with the common conclusion being that while it is great news, it will also take a considerable time to inoculate the world.

The US dollar index rebounded on the vaccine news and was recently quoted at 92.75, this after being at 92.20 at a similar time on Monday.

With the dollar rebounding, the other major currencies have been mixed: the yen (105.11) has lost considerable ground, the Australian dollar (0.7283) is consolidating, the euro (1.1825) is weaker and sterling (1.3185) has strengthened.

Key data
Key economic data already out on Tuesday showed China’s consumer price index (CPI) climb by 0.5% year on year in October, after a 1.7% rebound in September, while producer prices (PPI) fell by 2.1% in October, in line with September’s fall. Japan’s economic watchers sentiment jumped to 54.5 in October, from 49.3 in September.

Data out later includes the UK employment report, French and Italian industrial production and EU and German economic sentiment from the Zentrum fur Europaische Wirtschaftsforschung (ZEW).

US data includes the small business index from National Federation of Independent Business (NFIB), the Jolts jobs opening data and economic optimism from Investor’s Business Daily (IBD), TechnoMetrica Institute of Policy and Politics (TIPP).

In addition, Federal Open Market Committee members Robert Kaplan, Randal Quarles and Lael Brainard are scheduled to speak.

Today’s key themes and views
Perhaps with the pandemic prompting a mass of government monetary and fiscal policy and an opening up of the cash floodgates to provide unprecedented amounts of liquidity and support, the prospect of a vaccine has raised concerns that some of the liquidity, or promise of further liquidity, will be reined in and that is giving metals markets reason to reassess the situation.

After the two bits of news that suggest some return to normality in the months and quarters ahead – the markets may well spend time rethinking what it means for the outlook and that could lead to some choppy trading as positions are adjusted accordingly.

Monday saw risk-on and dollar strength and that led to a sharp sell-off in gold and not surprisingly after that there has been a knee-jerk rebound, but will it last? With some strong lights appearing at the end of the tunnel, the world is looking a bit less uncertain than it was and that may be a headwind for gold, especially if the opportunity cost of holding gold also heads higher.

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