MORNING VIEW: Broader markets mixed, but weight of money buoys metals, equities

Three-month base metals prices on the London Metal Exchange were mixed this morning, Thursday August 6, but the complex was up by an average of 0.4%.

Pre-market major western equity index futures and equities in Asian-Pacific markets were also mixed.

  • Western markets waiting for news on a stimulus package announcement by the United States this week, as well as Friday US employment report…
  • …either, or both, could increase volatility.
  • The gold price extended its record high to $2,055.65 per oz on Wednesday.

Base metals
The LME three-month base metals prices were mixed this morning with copper ($6,475 per tonne) and tin ($17,780 per tonne) down by 0.2% and 0.4% respectively. Nickel was up the most with a 1.4% gain to $14,465 per tonne, buoyed by reports of further lockdowns in parts of the Philippines, while the rest were up either side of 0.6%.

The most-traded base metals contracts on the Shanghai Futures Exchange were also mixed this morning; September aluminium led on the downside with a 1.4% decline, with October tin off by 0.5% and September copper down by 0.2% at 51,330 yuan ($7,388) per tonne. October nickel and the September contracts for lead and zinc were up between 2.1% and 2.4% – so quite a polarized market, suggesting the metals are trading their own fundamentals in China.

Precious metals
Spot gold was recently quoted at $2048.49 per oz, up by 0.5% from Wednesday’s close of $2,037.85. Gold has now rallied 41.6% from the March low.

Silver was up by 2.7% at $27.64 per oz, platinum was up by 1.5% at $984.50 per oz and palladium was up by 0.5% at $2,197 per oz.

Wider markets
The yield on US 10-year treasuries was at 0.54% this morning, compared with 0.52% at a similar time on Wednesday; the yield seems to be yo-yoing around in low ground, suggesting a base may be forming.

Asian-Pacific equities were mixed this morning: the Hang Seng (-1.57%), the Kospi (+1.33%), the CSI 300 (-1.25%), the Nikkei (-0.49%), the ASX 200 (+0.68%).

Currencies

The dollar index’s recent bounce has stalled and it has resumed its downward trend; the index was recently quoted at 92.72, having earlier established a fresh recent low at 92.49.

With the dollar weaker again, the main currencies are for the most part firmer: the euro (1.1877), the Australian dollar (0.7196), the yen (105.49) and sterling (1.3158).

Key data
Data already out this morning showed German factory orders climbed by 27.9% month on month in June, after a 10.4% rebound in May.

Data out later includes Italian industrial production, UK construction purchasing managers’ index (PMI) and US releases on initial jobless claims and Challenger job cuts.

In addition, US Federal Open Market Committee member Robert Kaplan is scheduled to speak.

Today’s key themes and views
Aluminium, zinc, lead and nickel are rallying strongly and are extending their gains, while copper and tin remain in consolidation mode. Compared with the March lows, the base metals are now up by an average of 34%, but only copper and nickel are back above their mid-January highs.

The metals look overbought when you consider the demand hit that has taken place in recent months and that suggests there has been considerable stockpiling or investor buy-and-hold interest. There may be a danger that if the extra buying wanes then prices may correct. But those who have not restocked may well be keen to do so into any dip.

Just as you do not want to catch a falling knife, gold is showing us the dangers of getting in the way of a charging bull. But gold is looking overbought in the short term, so we would be wary ahead of the US employment report and any announcement regarding the US stimulus package.

There will be no Morning View tomorrow, Friday August 7.

What to read next
The most recent financial results published by base metals mining companies highlight just how inflation is affecting profit margins, with increasing wages, financing costs and input prices all hitting profits, sources told Fastmarkets in the week to Thursday March 28
Century Aluminum is among those selected to start award negotiations for up to $500 million in Bipartisan Infrastructure Law and Inflation Reduction Act funding to build a new aluminium smelter, the company said on Monday March 25
Participants in the copper concentrates market are struggling to comprehend an “unstoppable” decline in treatment and refinement charges (TC/RCs), with every week bringing spot deals at fresh lows and rumors each “crazier” than the last, sources have told Fastmarkets
The US Department of Energy selected five base metals projects to receive more than $900 million in federal investment from its Industrial Demonstration Program (IDP), leading to a reduction of four million tonnes of carbon dioxide emissions annually, according to a statement by the Department on Monday March 25
Aluminium producer and recycler Constellium announced on Tuesday March 12 that the company is moving to test hydrogen utilization at an industrial scale as a power source in its casthouses
Fastmarkets has corrected its MB-ALU-0002 alumina index, fob Australia and its MB-ALU-0010 alumina inferred index, fob Brazil, which were published incorrectly on Monday March 18.