MORNING VIEW: LME base metals mainly tread water, while nickel dives

With little apparent progress made at last week’s United States-China trade talks and with economic data still generally pointing to weakness, as seen by China’s import and export data at the start of the week, the overall theme across markets seems to be one of more waiting.

  • Nickel sold off after a large late-in-the-day sell order on Monday caught the market off guard, leading to stops being triggered.
  • Asian equities are mixed; Japan is firmer while it plays catch-up having been closed on Monday, while the rest are mixed but quiet.
  • China’s consumer price index (CPI) climbed by 3% year on year in September, but the producer price index (PPI) fell 1.2% over the same comparison.

Base metals
Three-month base metals prices on the London Metal Exchange were mixed this morning, Tuesday October 15, but the spotlight has been taken by nickel which was down by 2.4% at $16,880 per tonne – although in late trading on Monday the charts have a low of $16,500 per tonne. Zinc was up by 0.5% at $2,430 per tonne and is starting to trend higher again, copper and tin were down by 0.2% at $5,809 per tonne and $16,510 per tonne respectively, lead prices were up by 0.1% at $2,140 per tonne and aluminium prices were unchanged, but looking weak at $1,719 per tonne .

In China, the most-traded base metals contracts on the Shanghai Futures Exchange were for the most part weaker this morning, led by a 3.1% drop in the most-traded November nickel contract. November aluminium was bucking the trend with a 0.4% rise, while the rest were down by an average of 0.3%. December copper was down by 0.1% at 47,010 yuan ($6,650) per tonne.

The spot copper price in Changjiang was down by 0.2% at 46,870-47,020 yuan per tonne and the LME/Shanghai copper arbitrage ratio was unchanged at 8.1.

Precious metals
Spot gold prices were treading water and were recently quoted at $1,490.24 per oz – the low on October 11 was $1,474.10 per oz. For now, upward momentum has been lost and it is a case of whether underlying buying is strong enough to support consolidation, or whether profit-taking sets in.

Silver prices were consolidating, as were platinum prices, while palladium prices continued to push into uncharted territory, setting a new high at $1,728 per oz, thereby brushing off the weak Chinese automotive data.

Wider markets
Spot Brent crude oil prices were weaker this morning, with prices down by 0.54% from Monday’s close and recently quoted at $58.88 per barrel.

The yield on benchmark US 10-year treasuries has eased again – it was recently quoted at 1.6928%, compared with 1.7298% at a similar time on Monday. The German 10-year bund yield, however, was stronger, it was recently quoted at -0.469%, compared with -0.483% at a similar time on Monday.

Asian equities were mixed on Tuesday: the Nikkei (+1.87%), the Hang Seng (-0.09%), the Kospi (+0.04%), the ASX 200 (+0.14%) and the CSI 300 (-0.43%).

This follows a weaker performance in Western markets on Monday, where in the US, the Dow Jones Industrial Average closed down by 0.11% at 26,787.36; in Europe, the Euro Stoxx50 closed down by 0.38% at 3,556.26.

The dollar index is consolidating and was recently quoted at 98.48, it has breached the uptrend line on the charts, so we wait to see if we start to see a weaker dollar.

The other major currencies we follow were also consolidating: the yen (108.26), the euro (1.1016), the Australian dollar (0.6772) and sterling (1.2648).

Key data
In addition to the Chinese CPI and PPI data, other releases already out showed a mixed picture for Japan’s industrial data and a 0.3% fall in French CPI.

Data out later includes data on the United Kingdom’s employment situation, readings on economic sentiment in the European Union and Germany and data on the US Federal budget balance.

In addition, UK Bank of England governor Mark Carney, UK Monetary Policy Committee member Gertjan Vlieghe and US Federal Open Market Committee members Esther George and James Bullard are speaking.

Today’s key themes and views

The base metals are for the most part trading their own fundamentals and are therefore looking quite mixed. Lead remains the metal that is trending higher in a steady fashion, zinc seems to be starting to trend higher and tin is attempting to rebound out of low ground. Copper and aluminium are rangebound, with copper working higher and aluminium working lower, while nickel has started to correct.

With economic data pointing to a slowing global economy the base metals face headwinds on the demand side of the equation, but where supply is tight there does seem to be room for price gains, which we are seeing in lead.

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.

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