MORNING VIEW: Copper, aluminium upbeat, other metals tread water in high ground

Base metals prices on the London Metal Exchange were a bit more mixed this morning, Thursday May 6, while the return of trading on the Shanghai Futures Exchange after the Labor Day holidays saw good gains in all metals apart from zinc.

  • Markets generally buoyant – perhaps not so surprising when the two largest economies, China and the United States could grow 6% or more this year…
  • …but you have to ask, how much of that is already baked-in to valuations?
  • Tensions escalate between China and Australia

Base metals
Three-month copper ($9,988 per tonne) and aluminium ($2,456.50 per tonne) were up by 0.6% and 0.4% respectively this morning, while the rest of the metals were down by an average of 0.7%, consolidating recent gains. Copper’s high yesterday was $10,040.

At 6.19am London time on Thursday, a total of 9,307 lots had been traded on the LME, compared with 4,159 lots at a similar time on Wednesday.

The most-active base metals contracts on the SHFE were mainly stronger, with the exception of June zinc, which was down 0.5%. The rest were up quite sharply, with gains averaging 1.8%. The June copper contract was up by 1.3% at 72,930 yuan ($11,253) per tonne.

Precious metals
Spot silver led on the upside this morning with a 1.1% gain to $26.71 per oz, spot gold was up 0.3% at $1,791.31 per oz – its recent high being $1,798.90 – while platinum ($1,228.40 per oz) and palladium ($2,985.90 per oz) were up by 0.4% and 0.5% respectively.

Wider markets
The yield on US 10-year treasuries edged back to 1.57%, compared with 1.59% at a similar time on Wednesday.

Asia-Pacific equities were mixed on Thursday: the ASX 200 (-0.47%), the Hang Seng (+0.43%), the Nikkei (1.84%), the CSI 300 (-1.02%) and the Kospi (0.7%).

The US Dollar Index’s downward trend halted on April 29. Since then, the index has had some upward movement, but over the past four days has encountered resistance ahead of 91.45. It was recently quoted at 91.27.

With the dollar off its lows, the other major currencies were generally consolidating off recent highs: the euro (1.2006), sterling (1.3905), the Australian dollar (0.7740) and the yen (109.31).

Key data
Thursday’s economic agenda is busy, with data already out showing that German factory orders increased by 3% in March, after a 1.4% rise in February.

Later, there is United Kingdom data on services purchasing managers index (PMI), EU retail sales, with US data on Challenger job cuts, initial jobless claims, preliminary non-farm productivity and unit labor costs and natural gas storage.

In addition, the Bank of England will give details of its latest monetary policy and the European Central Bank president Christine Lagarde and US Federal Open Market Committee members John Williams and Raphael Bostic are scheduled to speak.

Today’s key themes and views
While some metals have pulled back to consolidate, the underlying tone across the metals is bullish, which supports our view that the path of least resistance remains to the upside.

Bond yields are managing to ease, which suggests concerns about inflation are being capped at present. That might avoid rocking the tech sector’s equities, which is where we see as the most likely source of any headwinds.

While we are signed-up members of the super-cycle club and expect higher prices over the medium to long term – especially given all the infrastructure-spend promises – we are also wary when prices go up in straight lines for too long.

Given all the stimulus packages, the recovering economic growth and how the expected infrastructure spending could boost commodity prices, we are wary about inflation. This, combined with stretched valuations in other markets, could all boost interest in gold.

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