MORNING VIEW: LME base metals prices consolidate after Thursday’s weakness

London Metal Exchange base metals prices were firmer this morning, Friday September 4, but this appears to be early bargain-hunting/consolidation after Thursday’s 1.5% average decline. Asian equities and base metals prices were weaker while they followed yesterday’s weakness in western markets.

We wait to see if this weakness was the result of some book squaring ahead of the much-watched monthly US employment report out this afternoon, or whether it signals the start of a broader based bout of profit-taking and consolidation while traders review recent months’ performance ahead of the US presidential election.

  • Nasdaq led the downside correction on Thursday with a 4.96% drop.
  • Financial Times reports US executives sold $6.7 billion of stock in their own companies in August.
  • Dollar’s three-day rebound on pause this morning.

Base metals
Three-month base metals prices on the LME were firmer this morning and up by an average of 0.4%, led by 0.6% gains in copper ($6,623 per tonne) and nickel ($15,160 per tonne), while lead was up by the least with a 0.1% gain to $1.943 per tonne.

Trading volume has, however, been light with 3,411 lots traded as of 5.40am London time, this compares with an average of 6,305 lots at a similar time across Tuesday to Thursday.

The most-traded base metals contracts on the Shanghai Futures Exchange were down across the board by an average of 1.3% this morning, while they played catch-up with Thursday’s performance on the LME. November nickel led the decline with a 2.1% fall, while October copper fell by 0.8% and was recently quoted at 51,500 yuan ($7,528) per tonne.

Precious metals
The spot precious metals were also consolidating this morning after most pulled back on Thursday; gold was up by 0.3% at $1,936.29 per oz this morning, silver ($26.66 per oz) was up by 0.3%, platinum ($898.50 per oz) was up by 1.3% and palladium ($2,311 per oz) was up by 0.2%.

Wider markets
The yield on US 10-year treasuries was weaker again this morning at 0.64%, after being at 0.66% at a similar time on Thursday morning. The yield has been drifting lower all week - a sign of risk-off.

Asian-Pacific equities were weaker across the board this morning: the CSI 300 (-1.67%), the Hang Seng (-1.7%), the Kospi (-1.1%), the Nikkei (-1.23%) and the ASX 200 (-3.1%)

The dollar index’s rebound in recent days has halted this morning; it was recently quoted at 92.77, this after 93 at a similar time on Thursday and after setting a two-year low at 91.73 on Tuesday.

With the dollar off rebound highs, the other main currencies were off recent lows this morning: the euro (1.1849), the Australian dollar (0.7271), the yen (106.18) and sterling (1.3272).

Key data

The focus will be on today’s US employment report, but before that there is data on Germany’s factory orders, France’s government budget balance and UK construction purchasing managers’ index.

In addition, UK Monetary Policy Committee member Michael Saunders is scheduled to speak.

Today’s key themes and views
We have been saying of late that the base metals are looking a bit toppy and Thursday’s price weakness supported that view. We now need to see whether the loss of upward momentum leads to more profit-taking. Given the strong rises in the base metals prices in recent quarters, not to mention equities, a lot of good news is probably already baked in and therefore consolidation and set-backs should be expected.

Gold prices tried higher on Monday and Tuesday, but have pulled back since, however dip buying still seems present. That said, if broader markets do suffer further profit-taking then we would expect that to affect gold too, but once the money is realized from profit-taking in broader markets it may then rotate into gold, so the secondary reaction to a sell-off in broader markets may be bullish for gold. Overall, we expect more choppy trading in gold while the market consolidates.

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