MORNING VIEW: Base metals prices firm despite broader markets showing increased stress from Covid-19

Base metals prices on both the London Metal Exchange and Shanghai Futures Exchange were for the main part firmer this morning, Wednesday October 28, this despite early weakness in major western equity index futures that were suffering because parts of Europe look set to escalate lockdown measures.

  • France is reportedly contemplating a one-month nationwide lockdown
  • Nickel prices surge as a nickel miner in the Philippines has halted production following a Covid-19 outbreak

Base metals
Three-month base metals prices on the LME were mainly stronger, the exception was aluminium that was unchanged, while the rest of the complex was up by an average of 1.2% – led by a 2.4% rise in nickel ($16,275 per tonne). Copper was up by 0.4% at $6,818.50 per tonne.

The most-traded base metals contracts on the SHFE were also mainly firmer, the exception was December aluminium that was down by 0.9%, while December nickel was up by 5.5% and the rest were up by an average of 1.3%. December copper was up the least with a 0.6% gain to 51,850 yuan ($7,729) per tonne.

Precious metals
The precious metals complex was firmer on Wednesday with the industrial precious metals, silver, platinum and palladium, up by an average of 0.9%, while spot gold was up by just 0.1% at $1,907.11 per oz.

Wider markets
The yield on US 10-year treasuries has eased further and was recently quoted at 0.76%, compared with 0.8% at a similar time on Tuesday. This suggests a slight pick-up in risk-off sentiment.

Asia-Pacific equities were mixed this morning, with the ASX 200 (+0.11%) and the CSI 300 (+0.81%) up, while the Hang Seng (-0.1%), the Nikkei (-0.29%) and the Kospi (-0.56%) weakened.

The US dollar index was on an uptick again this morning within the month-old downward trend, it was recently quoted at 93.11, after 92.98 at a similar time on Tuesday.

The other major currencies were mixed; the yen (104.180 is stronger while it picks up some haven demand, the Australian dollar (0.7140) is flat, while the euro (1.1820) and sterling (1.3022) are weaker – reflecting heightened tension over the spread of Covid-19.

Key data
Economic data already out on Wednesday showed the United Kingdom’s shop price index from the British Retail Consortium fall by 1.2% year on year in October, after a 1.6% fall in September.

Later there is data on German import prices and US data on goods trade balance, wholesale inventories and crude oil inventories.

In addition, US Federal Open Market Committee member Robert Kaplan is scheduled to speak.

Today’s key themes and views
The base metals are looking quite mixed; nickel is setting fresh highs on supply disruption news, zinc is challenging recent highs and copper and tin are consolidating after recent weakness. Aluminium has started to drift lower this week and lead remains the weakest of the complex with prices trading sideways.

With equities in Europe showing weakness this morning, we would not be surprised if that produced a headwind for the metals, especially because we expect markets to become more volatile ahead of the US presidential election, which is only six days away.

Gold prices are stuck in a sideways range. Over the long run we remain bullish, but are prepared for increased volatility around the US election. While the yen and US treasury yields are reflecting some risk-off this morning, gold does not seem to be.

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