MORNING VIEW: Base metals prices mainly down as reality check gains momentum

Base metals prices on the London Metal Exchange were down across the board this morning, Thursday September 24, while risk-off gathered pace on concerns that the Covid-19 pandemic is spreading aggressively again.

US central bankers also warned on Wednesday that the US economy remained in a “deep hole” of joblessness and weak demand.

  • Base metals prices on the LME are all dropping from high ground, with some starting to trend lower.
  • US dollar is rebounding strongly.
  • Asian-Pacific equities were weaker this morning.

Base metals
Three-month base metals prices on the LME were down by an average of 0.7% this morning, this after an average fall on Wednesday of 1.8%. Copper led the decline this morning with a 1% fall to $6,532 per tonne.

Volumes traded on the LME have been above average with 9,402 lots traded by 5.57am London time, compared with an average across last week of 6,013 lots at a similar time of day.

The most-traded base metals contracts on the Shanghai Futures Exchange were for the most part weaker, the exception was November lead that was up by 0.1%, while the rest of the complex were down by an average of 1.9%. November copper was down 1.6% at 50,720 yuan ($7,456) per tonne, while October aluminium was down the most with a 3.4% drop.

Precious metals

We have been saying in recent weeks that markets have been looking for direction and spot gold made its move on Monday, when it broke out of the bottom of its triangle pattern on the chart. Prices were down by 0.2% this morning at $1,854.52 per oz, the lowest they have been since July 22.

Spot silver has been declining at a fast pace since falling out of its sideways range, prices are down 2.2% this morning at $21.94 per oz. Platinum was little changed at $837.50 per oz this morning, this after a 3.2% fall on Wednesday, while palladium was down by 0.2% at $2,208.90 per oz.

Wider markets
While risk-off is hitting most markets, the yield on US 10-year treasuries has not been moving much. It was recently quoted at 0.67%, this compared with 0.69% at a similar time on Monday – the yield has been quite contained in recent weeks.

Asian-Pacific equities were weaker this morning: the CSI 300 (-1.66%), the Hang Seng (-2%), the Kospi (-2.62%), the ASX 200 (-0.86%) and the Nikkei (-1.22%).

The dollar index started to rebound strongly on Monday and that has continued; it was recently quoted at 94.43, up from 92.82 at a similar time on Monday.

The other major currencies were weaker this morning: the euro (1.1656), the Australian dollar (0.7035), sterling (1.2700) and the yen (105.38).

Key data
Key data out Thursday showed Japan’s core consumer price index remained flat in August, as it was in July. Data out later includes German Ifo business climate, UK realized sales from Confederation of British Industry (CBI) and US releases on initial jobless claims and new home sales.

In addition, there is a European Central Bank economic bulletin; Bank of England governor Andrew Bailey, UK chancellor Rishi Sunak and Federal Open Market Committee member John Williams are scheduled to speak; and US Federal Reserve chair Jerome Powell and US treasury secretary Steven Mnuchin are testifying before the Senate Banking Committee.

Today’s key themes and views
Markets in general seem to be undergoing a reality check and while equities have led the way, the base metals are now following. Given the gains over recent months, the sell-offs might continue for a while, but we do expect the good buying interest from those who have avoided chasing prices higher, but who need to restock ahead of stronger demand from infrastructure projects.

We have been saying this week that if equities weaken further then there may be an initial downward move in gold, but we would then expect a secondary reaction to the upside while money rotates out of equities and into havens. We are now waiting to see if there is further weakness before the buying emerges.

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