MORNING VIEW: Base metals prices mainly firmer, but consolidation dominates

Apart from aluminium, base metals prices on both the London Metal Exchange and the Shanghai Futures Exchange were firmer this morning, Tuesday March 30, with broader markets also firmer having partially shook off, for now, contagion worries from last week’s hedge fund troubles.

  • US Treasury 10-year yields jump higher again
  • Weakness in gold prices and stronger bond yields suggest market is not looking to de-risk

Base metals
LME three-month base metals prices were for the most part firmer this morning. Aluminium was bucking the trend with a 0.3% fall to $2,266.50 per tonne, but it has been the front-runner in recent days in pushing the envelope on the upside, while the rest of the metals have been oscillating sideways.

LME tin and zinc prices were unchanged this morning, while the rest were stronger, led by a 0.9% rise in nickel ($16,340 per tonne), with lead up by 0.3% at $1,969 per tonne and copper up by 0.4% at $8,914 per tonne.

The most-active base metals contracts on the SHFE were mainly firmer; May aluminium was off by 0.5% but the rest were up by an average of 0.7%, although May copper was little changed, up by 20 yuan per tonne at 66,480 yuan ($10,131) per tonne. For a change, May lead was up the most with a 2.3% gain.

Precious metals

Precious metals prices were mixed this morning, with spot gold and silver both off by 0.3% at $1,707.14 per oz and $24.59 per oz respectively and spot platinum off by 0.1% at $1,175.50 per oz, while spot palladium was up by 0.2% at $2,540.20 per oz.

Wider markets

The yield on US 10-year treasuries has jumped to 1.74% this morning, up from 1.64% at a similar time on Monday. This suggests risk-on while the market appears to be isolating the distressed unwinding of a hedge fund’s trades…

…as do Asian-Pacific equities that were mainly stronger on Tuesday: the CSI 300 (+0.59%), the Nikkei (+0.08%), the Kospi (+1.06%) and the Hang Seng (+1%), while the ASX 200 (-0.9%) was weaker.

The US Dollar Index remains bullish and was recently at 92.97, this after 92.80 at a similar time on Monday – this is the highest the index has been since mid-November 2020.

The other major currencies were mixed: the euro (1.1764), sterling (1.3769) and the Australian dollar (0.7646) were consolidating, while the yen (109.97) was weakening – again suggesting limited haven demand, which the performance of gold and bond yields is also showing.

Key data
Data already out Tuesday showed Japan’s unemployment rate was unchanged at 2.9% in February, while the country’s retail sales fell by 1.5% year on year that same month, which was better than the 2.4% decline in January. Elsewhere, Germany’s import prices rose by 1.7% month on month in February, compared with the 1.9% climb in January.

Later there is data on German and Spanish consumer prices (CPI), along with US data on house prices and consumer confidence.

In addition, US Federal Open Market Committee members Randal Quarles and John Williams are scheduled to speak.

Today’s key themes and views
The base metals are stuck in consolidation mode, with nickel and lead in low ground, aluminium in high ground and copper, tin and zinc in mid-ground. The underlying themes remain bullish especially if US President Biden manages to push through further infrastructure stimulus plans, but prices have already performed surprisingly well over the past 12 months, suggesting a lot of the recovery news may be in the prices already.

But perhaps the biggest downside risk comes from outside the metals markets. If equities start to suffer then that might well drag metals down too, at least initially. So far, China’s CSI 300 and the Nasdaq are showing weakness, but many other majors do not seem in any hurry to correct lower, with the Dax and S&P 500 extending record highs and the Dow Jones Industrial Average and Nikkei holding up in high ground.

Gold prices got some lift in recent weeks, but prices are slipping again, suggesting there is little appetite for havens at the moment.

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