MORNING VIEW: Base metals prices upbeat as risk-on sweeps through broader markets

Half of the base metals prices on the London Metal Exchange have in recent days risen to multi-month highs, with copper reaching levels not seen since June 2018, and all of the metals are pushing higher this morning, Wednesday October 21.

  • Some strike action in copper in Chile has added fuel to copper’s rally
  • High expectations for a further stimulus ahead of the US presidential election has boosted risk-on appetite.

Base metals
Three-month base metals prices on the LME were firmer this morning, with prices up by an average of 0.4% as at 5.54am London time. Gains were fairly evenly distributed with each metal up by between 0.3% and 0.4%. Copper was up by 0.4% at $6,933 per tonne, it ended Friday at $6,728 per oz.

The most-traded base metals contracts on the Shanghai Futures Exchange were mainly firmer this morning. The exception was November aluminium that was down by 0.2%, while the rest were up by an average of 1.4%, with November copper up by 1.4% at 52,130 yuan ($7,797) per tonne.

Precious metals
The precious metals complex was firmer on Wednesday, with spot prices up by an average of 0.6% – led by a 1% gains in silver ($25 per oz) and platinum ($882.40 per oz). Palladium was little changed at $2,411.10 per oz and gold was up by 0.3% at $1,917.14 per oz.

Wider markets
The yield on US 10-year treasuries has rebounded and was recently quoted at 0.82%, compared with 0.77% at a similar time on Wednesday – the rise supports the risk-on view.

Asia-Pacific equities were mainly firmer, with the ASX 200 (+0.12%), the Hang Seng (+0.78%), the Nikkei (+0.36%) and the Kospi (+0.39%) all up. The exception was the CSI 300 (-0.54%), but that might be investors starting to worry about the stronger yuan that was recently quoted at 6.6480, the lowest it has been since July 2018, when the currency was weakening while the US-China trade war started to take effect.

The US dollar index has been weakening this week and was recently quoted at 92.88, after 93.39 at a similar time on Tuesday.

With the dollar weaker, most other major currencies were rising, with the euro at 1.1846, the Australian dollar at 0.7077, sterling at 1.2981 and the yen at 105.31.

Key data
On Wednesday’s economic agenda there is a series of price data from the United Kingdom including consumer, producer, retail and house price indices, as well as data on the public sector borrowing. There is also US data on crude oil inventories and the Beige Book.

In addition, UK Monetary Policy Committee member Sir Dave Ramsden and US Federal Open Market Committee members Lael Brainard and Loretta Mester are scheduled to speak.

Today’s key themes and views
The base metals prices on the LME, with the exception of lead, are looking particularly strong suggesting the messages coming out of the virtual conferences being held during LME Week are painting a bullish picture. Even lead, which has been the weakest of the complex, is looking higher and as we have commented on before, may well be dragged higher in the wake of the other metals.

Gold prices are edging higher and are approaching resistance, but it remains to be seen whether increased risk-on becomes a headwind for gold? For now gold is benefiting from the weaker dollar. Given that we are probably entering a volatile period ahead of the US presidential election, demand for havens may well remain elevated.

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