MORNING VIEW: Base metals prices mixed following Thursday’s sharp pullbacks

Base metals prices on the London Metal Exchange were mainly stronger during morning trading on Friday October 22, but those on the Shanghai Futures Exchange were largely down – this follows significant losses on the LME on Thursday.

  • Chinese property giant Evergrande Group makes a dollar bond interest payment.
  • US treasury yields up sharply following better-than-expected US initial jobless claims data on Thursday.
  • US president Joe Biden vows to defend Taiwan from Chinese military action

Base metals
LME three-month base metals prices were mainly up this morning, with aluminium ($2,875 per tonne) bucking the trend with a 1% loss. The rest were up by an average of 0.7%, with copper ($9,885 per tonne) up by 1%. These gains follow Thursday’s losses that averaged 4.6%.

The most-active base metals contracts on the SHFE were weaker by an average of 3.6%, led by a 7.4% fall in December aluminium. November lead bucked the trend with a 0.5% gain, while December copper was off by 2.4% at 72,170 yuan ($11,281) per tonne. Given there is no shortage of lead in China, it is odd to see lead the only metal in positive territory.

Precious metals

The precious metals were firmer with spot gold up by 0.1% at $1,786.10 per oz. Silver, platinum and palladium were up by 0.2%, 0.7% and 1.5% respectively.

Wider markets
The yield on US 10-year treasuries sprung higher again, suggesting optimism about the recovery and concerns about inflation; it was recently at 1.69%, up from 1.64% at a similar time on Thursday.

Asia-Pacific equities were mainly firmer on Friday morning: the Nikkei (+0.34%), the Hang Seng (+0.32%), CSI 300 (+0.64%) and the ASX 200 (+0.01%), while the Kospi (-0.04%) was slightly weaker. The Evergrande bond payment seems to have boosted sentiment.

The US Dollar Index was firmer this morning and was recently at 93.73, compared with 93.60 on Thursday.

The other major currencies were consolidating: sterling (1.3793), the Australian dollar (0.7475), the euro (1.1628) and the Japanese yen (114.02).

Key data
Economic data already out on Friday included the United Kingdom’s GfK consumer confidence that was -17 in October, after -13 in September; UK retail sales that fell by 0.2% month on month in September, after a 0.6% fall in August; Japan’s core consumer price index that climbed by 0.1% year on year in September, after being flat in August; and Japan’s flash manufacturing purchasing managers index (PMI) that climbed to 53 in October, from 51.5 in September.

Later there is flash PMI data for services and manufacturing out across Europe and the United States, Chinese leading indicators, the US Federal budget balance and a US treasury currency report.

In addition, US Federal Open Market Committee members Mary Daly and Federal Reserve chair Jerome Powell are scheduled to speak.

Friday’s key themes and views
We said on Wednesday that we should brace for increased volatility and in recent days trading has become more volatile, and we should expect more of the same.

We also question whether the impact on manufacturing and retail sales from the semiconductor shortage, snarled-up supply chains and high metal and energy prices has been reflected in broader markets. If they have a delayed negative reaction, then that could further weigh on metals’ prices down the road. Today’s PMI data may through more light on this. Broader markets could also turn negative and the US dollar positive, if the Federal Reserve starts to spell out its tapering plan.

Gold prices are getting some lift despite the stronger bond yields and with Bitcoin hitting new record highs in recent days, gold may start to look a relatively cheaper haven.

The next scheduled Morning View will be on Tuesday November 2