MORNING VIEW: LME base metals face headwinds while US-China tensions escalate over Hong Kong

Tensions between the United States and China have risen again after the US House of Representatives passed an act to support Hong Kong protestors - this is unlikely to help trade negotiations and therefore is another headwind for the markets.

  • International Monetary Fund (IMF) warns global growth could fall to levels last seen during the 2008 financial crisis.
  • A Brexit deal may be on the cards, expect a decision by 2pm London time.

Base metals
Three-month base metals prices on the London Metal Exchange were either unchanged or weaker this morning, Wednesday October 16, with aluminium and tin unchanged while the rest were down by an average of 0.3% – led by a 0.6% fall in nickel prices to $16,900 per tonne. Copper was off by 0.4% at $5,754 per tonne.

In China, the most-traded base metals contracts on the Shanghai Futures Exchange were mixed this morning, the January tin contract led on the upside with a 1.2% gain, while November nickel led on the downside with a 0.8% decline. November zinc was down by 0.6%, November lead was up by 0.7%, November aluminium was up by 0.6%, while December copper was little changed – down by 0.1% at 46,870 yuan ($6,621) per tonne.

The spot copper price in Changjiang was down by 0.2% at 46,830-46,910 yuan per tonne and the LME/Shanghai copper arbitrage ratio was unchanged at 8.1.

Precious metals
Spot gold prices are drifting and were recently quoted at $1,480.20 per oz – the lows on October 11 and October 1, were $1,474.10 and $1,459.18 per oz respectively. For now, upward momentum has been lost and it is a case of whether the uptrend is pausing for breath, or whether good news on US-China trade and Brexit has encouraged more profit-taking.

Silver and platinum prices are following gold’s lead, while palladium prices continues to push into uncharted territory, setting a new high at $1,741 per oz on Tuesday.

Wider markets
Spot Brent crude oil prices were firmer this morning, with prices up by 0.27% from Tuesday’s close and recently quoted at $58.99 per barrel.

The yield on benchmark US 10-year treasuries has strengthened again suggesting risk-on – it was recently quoted at 1.7447%, compared with 1.6928% at a similar time on Tuesday. The German 10-year bund yield was also stronger, it was recently quoted at -0.414%, compared with -0.469% at a similar time on Tuesday.

Asian equities were for the most part firmer this morning, the exception was China’s CSI 300 that was down by 0.34%, while the others were up: the Nikkei (+1.2%), the Hang Seng (+0.49%), the Kospi (+0.71%) and the ASX 200 (+1.27%).

This follows a stronger performance in Western markets on Tuesday, where in the US, the Dow Jones Industrial Average closed up by 0.89% at 27,024.80; in Europe, the Euro Stoxx50 closed up by 1.19% at 3,598.65.

The dollar index is weaker and was recently quoted at 98.23, it has breached the uptrend line on the charts, so a weaker dollar seems to be on the cards.

The dollar weakness, however, may be driven by strength of European currencies where optimism for a Brexit deal is providing some support, with the euro at 1.1050 and sterling at 1.2744. The Australian dollar (0.6740) and yen (108.70) are weaker.

Key data

The economic agenda is busy today with a barrage of UK pricing data, including the consumer price index (CPI) as well EU data that includes readings on CPI and trade balance.

US data includes retail sales, business inventories, housing market index, the Beige Book, Federal budget balance and Treasury International Capital (TIC) long-term purchases data.

In addition, numerous central bankers are speaking; Bank of England governor Mark Carney is speaking at the IMF and at Harvard University, Germany’s Bundesbank president Jens Weidmann is speaking in New York and US Federal Open Market Committee member Lael Brainard is giving an address in Washington DC.

Today’s key themes and views
With the exception of tin, the base metals are looking weaker this morning. But as we have said in recent days, while the overall economic and political backdrop is not that supportive, the metals are tending to trade their own fundamentals. Today we are seeing the increased tensions between China and the US as well as the IMF’s downbeat outlook for global economic growth acting as dampeners, although the weaker dollar may end up providing some support.

There is still a lot of political uncertainty around that could further affect markets, so while gold prices may have pulled back from the highs, we expect dips will remain well supported, especially if the dollar weakens further.

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precious metals

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