MORNING VIEW: Base metals prices pull back as markets generally take a breather

Base metals prices on the London Metal Exchange and Shanghai Futures Exchange were for the most part down on Friday January 22, after having been up across the board a day earlier, while markets generally seem to be taking a breather after the enthusiasm the US presidential inauguration brought.

  • Republicans in US Congress thought to be willing to work with President Joe Biden on his $1.9 trillion fiscal stimulus plan

Base metals
Three-month base metals prices on the LME were down by an average of 0.7% this morning, led by 1.5% fall in nickel ($18,115 per tonne) and 1.2% drop in zinc ($2,676.50 per tonne). Copper ($7,980 per tonne) and aluminium ($1,985 per tonne) were both down by 0.7% and lead ($2,029 per tonne) and tin ($22,060 per tonne) were both down by 0.2%.

The most-traded base metals contracts on the SHFE were also for the most part weaker this morning, the exception was March tin that was up by 1.7%, while the rest were down by an average of 1%, led by a 1.7% fall in March zinc, while March copper was down by 0.7% at 58,780 yuan ($9,094) per tonne.

Precious metals
Spot gold was up down by 0.6% at $1,857.84 per oz this morning, silver ($25.39 per oz) was down by 2%, platinum was off by 1.4% at $1,109.50 per tonne) and palladium bucked the trend with a 0.1% rise at $2,367 per oz.

Wider markets

Despite the pullback in broader markets, the yield on US 10-year treasuries is not showing any stress; it was recently quoted at 1.11%, up from 1.08% a similar time on Thursday.

Asian-Pacific equities were weaker this morning: the Kospi (-0.35%), the ASX 200 (-0.34%), the CSI (-0.31%), the Nikkei (-0.27%), the Hang Seng (-1.39%).

The US Dollar Index was consolidating this morning after three days of weakness and was recently quoted at 90.16, this after a low of 90.04 on Thursday.

The other major currencies were also consolidating this morning: the euro (1.2167), the Australian dollar (0.7736), sterling (1.3697) and the yen (103.60).

Key data
Key data already out Friday includes UK GfK consumer confidence that showed a reading of -28 for January after a -26 reading in December, and Japan’s flash manufacturing purchasing managers’ index (PMI) that dipped to 49.7 in January, from 50 in December.

Data out later includes UK retail sales, data on the UK’s public sector borrowing requirements, flash services and manufacturing PMI data about across the European Union and United States and US data on crude oil and natural gas inventories.

Today’s key themes and views
The base metals are looking quite mixed this morning with tin and nickel consolidating after recently setting fresh highs, while copper, aluminium and lead are oscillating sideways as they continue to consolidate below recent highs, but zinc is the one looking the weakest because it keeps breaching minor support levels.

Although we remain long term bullish toward the base metals, we have to be prepared for some counter trend moves along the way and talk about stricter lockdowns in many areas may well prompt more profit-taking.

Gold prices rallied mid-week but have run into resistance ahead of the upper boundary of their down channel that is at $1,881 per oz. Overall, we see the yellow metal continuing to consolidate its September 2018 – August 2020 bull run and it would take a move back above $1,881 per oz and then $1,965 per oz to suggest the uptrend is resuming.

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