MORNING VIEW: Base metals prices tread water ahead of US-China trade talks

Markets are treading water this morning, Wednesday October 9, ahead of the United States-China trade talks that are being held on Thursday and Friday.

Ahead of the negotiations, optimism for a trade deal between the two is fading while rhetoric rises, but that may just be gamesmanship.

The International Monetary Fund (IMF) is expected to downwardly revise its growth projections for this year and the next when it releases its latest forecast next week, with IMF chief Kristalina Georgieva saying the global economy is now in a “synchronized slowdown”.

  • Asian equities mainly lower while concerns rise over trade talks
  • Haven assets edge higher

Base metals
Three-month base metals prices on the London Metal Exchange were for the most part little changed this morning, the exceptions were copper, which was up by 0.4% at $5,703.50 per tonne, and tin, which rose by 0.5% to $16,460 per tonne.

Nickel prices are holding up well while stocks in LME-registered warehouses continue to fall at an accelerated pace, with less than 50,000 tonnes of metal now on-warrant, with around 68,000 tonnes of warrants now cancelled.

In China, the most-traded base metals contracts on the Shanghai Futures Exchange were mixed this morning, the most notable performer once again being the November lead contract that was down by 1.5% from Tuesday’s close, this after a 1.7% gain on Tuesday. The January tin contract led on the upside with a gain of 1.7% from Tuesday’s close. The November copper contract was down by 0.4% at 46,680 yuan ($6,530) per tonne.

The spot copper price in Changjiang was down by 0.6% at 46,680-46,790 yuan per tonne and the LME/Shanghai copper arbitrage ratio was 8.18, compared with 8.15 at a similar time on Tuesday.

Precious metals

Spot gold prices were little changed this morning and were recently quoted at $1,507.70 per oz, but that is up from $1,489.35 per oz, which is where they were at a similar time on Tuesday. This we think reflects the increased concerns over the US-China trade talks.

Silver, platinum and palladium spot prices are following gold’s lead, although palladium is generally trading its own fundamentals that are looking robust.

Wider markets
Weaker economic data had been weighing on oil, causing the spot Brent crude oil price to fall to a low of $56.13 per barrel on October 3 - it was recently quoted at $58.10 per barrel.

The yield on benchmark US 10-year treasuries has weakened, like gold this is a sign of increased nervousness in the broader markets - it was recently quoted at 1.5300%, compared with 1.5736% at a similar time on Tuesday. Likewise, the German 10-year bund yield is weaker too, it was recently quoted at -0.5870%, compared with -0.5630% at a similar time on Tuesday.

Asian equities were for the most part weaker on Wednesday: the Nikkei (-0.66%), the Hang Seng (-0.71%), the Kospi (closed), and the ASX 200 (-0.71%), but the CSI 300 is up by 0.12%.

This follows a weaker performance in Western markets on Tuesday, where in the US, the Dow Jones Industrial Average closed down by 1.19% at 26,164.04; in Europe, the Euro Stoxx50 closed down by 1.11% at 3,432.76.

The dollar index was slightly firmer at 99.03, compared with 98.93 at a similar time on Tuesday. The recent range being 98.63 to the multi-year peak at 99.38.

The other major currencies were mixed and little changed: the euro (1.0975), the Australian dollar (0.6741), the yen (107.13) and sterling (1.2225).

Key data
On Wednesday’s economic agenda there is data on US wholesale inventories, job openings and crude oil inventories.

In addition, there is a UK financial policy committee statement, Eurogroup meetings, the US Federal Open Market Committee (FOMC) minutes and speeches by US Federal Reserve chair Jerome Powell and FOMC member Esther George.

Today’s key themes and views
The LME base metals are treading water, waiting for developments on trade talks that are likely to set the next direction. Overall, we expect some volatile trading around the trade talks.

Gold prices have edged higher and like the base metals, the next direction is likely to be driven by how the trade talks go.

base metals

precious metals

macroeconomic data

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