MORNING VIEW: Base metals prices mixed, but sentiment more bullish again

Base metals prices on the London Metal Exchange and Shanghai Futures Exchange were mixed this morning, Monday October 12, but sentiment has turned more bullish, especially in aluminium, since China returned from its Golden Week holiday.

  • Expectations for extra stimulus in the United States have kept equities buoyant.
  • China’s markets underpinned by steady recovery and by the fact it appears to have Covid-19 under control, unlike Europe and the US.

Base metals
Three-month base metals prices on the LME were split on Monday, with copper, lead and tin showing losses of between 0.2% and 0.3%. Copper is down 0.2% at $6,760 per tonne, while aluminium, nickel and zinc were up by an average of 0.4%.

The most-traded base metals contracts on the Shanghai Futures Exchange were also mixed, with November lead and December tin, down by 1% and 0.2% respectively, while the rest of the metals were up by an average of 0.6%, led by a 1.4% risen in November nickel, while November copper was up by 0.1% at 51,470 yuan ($7,560) per tonne.

Precious metals
The precious metals complex was also mixed on Monday. Spot silver led on the upside with a 1.1% gain to $25.39 per oz, followed by spot palladium, up by 0.8% at $2,455 per oz, while spot gold was up by 0.1% at $1,929.28 per oz, and platinum was down 0.2% at $887.50 per oz.

Wider markets
The yield on US 10-year treasuries remains upbeat this morning and was recently quoted at 0.77%. The move up off the 0.5-0.6% base of late suggests more risk-on appetite.

The Asian-Pacific equities were mainly firmer: the ASX 200 (+0.49%), CSI 300 (+2.7%), the Kospi (+0.32%) and the Hang Seng (+2.38%), while the Nikkei (-0.24%) was weaker.

The US dollar index was trending lower again this morning after Friday’s fall. It was recently quoted at 93.04. The range since early September has been 91.73-94.75.

Most other major currencies were firmer, with the euro at 1.1823, the Australian dollar at 0.7230; and sterling at 1.3042, while at 105.46, the Japanese yen is slightly weaker.

Key data
Economic data already out on Monday showed Japan’s bank lending climbed 6.4% in September, compared with 6.7% in August, while producer prices (PPI) fell 0.8% in September, after a 0.6% fall in August.

Later there is data on German wholesale prices and Japan’s machine tool orders.
In addition, Bank of England Governor Andrew Bailey and United Kingdom Monetary Policy Committee member Jonathan Haskel are scheduled to speak.

Today’s key themes and views
The base metals are rebounding, led by aluminium, which broke higher on Friday to set a new 2020 high of $1,855.50 per tonne. Tin and copper are back in high ground, while the others are getting lift off from the lows, led by zinc, which is now mid-range.

The strength suggest dip-buying is still a powerful force, with the market focused on China’s recovery gaining momentum, with the potential for more stimulus in the US as demand rises and infrastructure projects get under way.

Gold prices are also on the rise, suggesting the rising tide in metals is lifting all boats, but the weaker dollar will also be helping.

Although rising treasury yields are a possible headwind for gold, maybe not just yet, because real 10-year treasury yields are still negative and yields are rising as the market is wary that all the stimulus may have inflationary consequences.

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