MORNING VIEW: Inflation concerns rattle equities, metals take note

Base metals prices on both the LME and SHFE were mainly weaker this morning, Thursday May 13, this after some choppy trading in recent days and the greater-than-expected pick-up in the US Consumer Price Index (CPI) on Wednesday.

  • US CPI rises 4.4% year on year in April, and was up 0.8% month on month
  • Asia-Pacific equities weaken on Thursday
  • US treasury yields rise and forward curve steepens

Base metals
LME three-month base metals prices were mainly weaker, down by an average of 1%, although copper ($10,413.50 per tonne) and aluminium ($2,495 per tonne) were little changed. Constraints on China’s aluminium output, due to power generation and environmental issues, along with the potential for strikes in Chile and reduced copper output in China, due to low treatment/refining charges, seem to be underpinning copper and aluminium.

The most-active SHFE base metals contracts were down across the board with losses averaging 1.7%, led by a 2.8% fall in nickel. Copper was down by 0.7% at 75,879 yuan ($11,751) per tonne.

Precious metals
Precious metals have weakened over the past 24-hours. Prices in brackets show where prices were at a similar time on Wednesday: Gold $1,816.82 per oz ($1,829.37), silver $26.90 per oz ($27.36), platinum $1,216.30 per oz ($1,233.80) and palladium $2,883.30 per oz ($2,943.30). So for now the higher CPI number has not boosted gold prices, as prices pulled back with the general sell-off in equities.

Wider markets
The yield on US 10-year treasuries pushed up to 1.68% this morning, compared with 1.62% at a similar time on Wednesday.

Asia-Pacific equities were weaker on Thursday: the ASX 200 (-1.1%), the Nikkei (-2.28%), the Kospi (-1.38%), the CSI 300 (-1.13%) and the Hang Seng (-1.4%).

The US Dollar Index rebounded on the inflation number yesterday and was recently at 90.75, having been at 90.32 at a similar time on Wednesday.

With the dollar firmer, the other major currencies were weaker, with the euro (1.2079), sterling (1.4049), the Australian dollar (0.7718) and the yen (109.69) all falling.

Key data
Thursday’s economic agenda is focused on US producer prices and initial jobless claims.

In addition, the Bank of England governor Andrew Bailey, Monetary Policy Committee Member Jon Cunliffe and US Federal Open Market Committee members Tom Barkin and Christopher Waller are scheduled to speak.

Today’s key themes and views
With equities showing weakness on the back of raised inflation concerns it is not surprising that metals are on the back foot. The metals have looked overdue a correction for some time now, so we should now get an update on how bullish underlying sentiment really is, by seeing how far prices pull back and how long they stay down.

It is not unusual for gold prices to have an initial negative response to bullish-for-gold news, especially if that news drags broader markets lower. But such a response is often followed by a secondary, more logical, reaction. And increased inflation concerns would normally be bullish for gold prices. Interestingly, with Bitcoin and the yen under pressure, gold may have less competition as a haven, should one be needed.

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