MORNING VIEW: Base metals prices slip from highs, but generally consolidate

Base metals prices on the Shanghai Futures Exchange were mainly lower this morning, Wednesday December 23, while those on the London Metal Exchange were mixed.

Metals and broader markets seem to be settling down and oscillating sideways ahead of the Christmas and New Year holidays, suggesting markets are content to consolidate while many cross currents muddy the waters.

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Base metals
Three-month base metals prices on the LME were mixed this morning, with copper, aluminium and lead prices up by an average of 0.3%, with copper up by 0.3% at $7,773 per tonne, while the rest were down by an average of 0.6%.

The most-traded base metals contracts on the SHFE were mainly weaker, the exception was the January lead contract that was up by 0.6%, while the rest of the complex was down by an average of 1.9% – lead by a 3.9% decline in March nickel and a 2.3% fall in February zinc, while February copper was down by 1.1% at 57,860 ($8,838) per tonne.

Precious metals
Spot gold prices were little changed at $1,864.42 per oz, as were those for platinum ($1,007 per oz) and palladium ($2,325.60 per oz), while silver prices were down by 0.4% at ($25.28 per oz).

Wider markets

The yield on US 10-year treasuries was recently quoted at 0.90%, compared with 0.92% at a similar time on Tuesday.

Asia Pacific equities were firmer this morning: the ASX 200 (+0.66%), the Nikkei (+0.33%), the Hang Seng (+0.5%), the CSI (+0.61%) and the Kospi (+0.96%).

The US dollar index was edging higher and was recently quoted at 90.47, compared with 90.22 at a similar time on Tuesday.

Most of the other major currencies are consolidating now that the dollar appears to have found some support: the euro (1.2185), the Australian dollar (0.7551), the yen (103.48) and sterling (1.3406).

Key data
Key data scheduled to be released on Wednesday includes German import prices and a barrage of US releases that include durable goods orders, consumer price index on personal consumption expenditures, personal income and spending, initial jobless claims, new home sales and house price index, University of Michigan inflation expectations and consumer sentiment and crude oil and natural gas inventories.

Today’s key themes and views

While the metals consolidate there is a risk of profit-taking going into year-end, especially because there is uncertainty over how this new variant of Covid-19 will be handled by governments, which might mean there is a new risk that demand could be hit if more stringent lockdowns that affect manufacturing are imposed again.

Given the increased uncertainty and potential for broader markets to react negatively to the latest Covid-19 news, we would not be surprised to see some rotation into gold, although initially gold could also be carried lower if a broad-based ‘dash-for-cash’ unfolds. If that happens, then we would expect a bullish secondary reaction to follow.




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