MORNING VIEW: Base metals prices tread water, awaiting next direction

Base metals prices on the London Metal Exchange were mainly weaker this morning, Thursday April 1, and those on the Shanghai Futures Exchange were more mixed, while markets contend with cross winds.

  • United States treasury 10-year yields remain upbeat, as does the dollar
  • China’s Caixin manufacturing purchasing managers’ index (PMI) at 50.6 showed slower growth in March, compared with 50.9 in February, and it was below the 51.3 expected.
  • Japan’s manufacturing PMI climbed to 52.7 in March, after 52 in February

Base metals
LME three-month base metals prices were for the most part weaker this morning. Aluminium was the exception with a 0.7% rise to $2,228.50 per tonne. The rest of the complex were down by an average of 0.5%, led by a 0.9% drop in lead ($1,958.50 per tonne), with zinc ($2,802 per tonne) down the least with a 0.2% drop. Copper was off by 0.6% at $8,758.50 per tonne.

LME volumes have been relatively light this week with 3,750 lots traded so far this morning as of 5.47am London time, with the average so far this week at a similar time being 3,294 lots. This fits in with a market that is waiting for direction.

The most-active base metals contracts on the SHFE were more polarized than those on the LME, with June tin up 1.4%, May aluminium up by 1.1% and June Nickel up by 0.1%, while May lead was off by 1.3%, May zinc was down by 0.3% and May copper was off by 0.1% at 65,550 yuan ($9,993) per tonne.

Precious metals
Precious metals were also mixed; spot silver was down by 0.5% at $24.30 per oz, the rest were up by around 0.2% with gold at $1,711.85 per oz, platinum at $1,184.20 per oz and palladium $2,623.30 per oz.

Wider markets
The yield on US 10-year treasuries has eased to 1.73% this morning, from 1.74% at a similar time on Wednesday and down from a high just shy of 1.78% on Tuesday.

Asian-Pacific equities were upbeat on Thursday: the CSI 300 (+0.6%), the Nikkei (+0.69%), the Kospi (+0.51%), the Hang Seng (+0.94%) and the ASX 200 (+0.56%).

The US Dollar Index is looking robust and was recently at 93.31, this after 93.39 at a similar time on Wednesday – the recent high, 93.44, was the highest the index has been since mid-November 2020.

The other major currencies were either consolidating in low ground or testing support: the euro (1.1714), sterling (1.3761), the yen (110.72) and the Australian dollar (0.7540).

Key data

Thursday has a busy economic agenda with the main focus on the manufacturing PMI readings out across Europe and in the US.

Other data out already this morning, in addition to the Chinese and Japanese PMI mentioned above, were the Japanese Tankan manufacturing index that climbed to 5 in the first quarter, compared with -10 in the fourth quarter of last year, while over the same periods the non-manufacturing index was -1, compared with -5.

Other key data out today includes, German retail sales with US data on Challenger job cuts, initial jobless claims, construction spending, total vehicle sales and natural gas storage.

Today’s key themes and views
The base metals remain stuck in consolidation mode and, having lost upward momentum, now seem to be looking for direction. The stronger dollar and higher bond yields, combined with the fact the metals have seen impressive gains over the past year that is causing some profit-taking by investors, are all potential headwinds, while the promise of more infrastructure spending, on top of other stimulus, make for a bullish backdrop.

While we are bullish for the metals overall, we see potential downside risk coming from outside the metals markets. If equities start to suffer then that might well drag metals down too, at least initially. Today’s PMI readings may well set to tone today.

Gold prices found support just ahead of the March 8 low at $1,677.10 per oz and have bounced. This could be a potential double bottom on the chart. With prices now off some 19% from last August’s record high at $2,074.25 per oz, gold looks a cheaper haven now than it did – should a haven be needed, and for that we’ll be watching bond yields and equities closely.

The next scheduled Morning View report will be on April 12.

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