MORNING VIEW: LME base metals prices consolidate after Tuesday’s breakaway gains, broader markets mixed

Most of the base metals on the London Metal Exchange were consolidating this morning, Wednesday August 19, after the majority of them extended gains on Tuesday; the exceptions were aluminium and tin, while copper was where the main action was this morning.

  • The S&P 500 and Nasdaq established fresh record highs on Tuesday, while Asian-Pacific equities were mixed this morning.
  • Gold prices are consolidating while profit-taking sets in.
  • The dollar remains on a back foot.

Base metals
The three-month base metals prices on the LME were split into three camps this morning, with copper ($6,641.50 per tonne) and aluminium ($1,781.50 per tonne) leading on the upside with gains of 0.6% and 0.5% respectively, tin ($17,535 per tonne) was down by 0.6%, while the rest were little changed. This after gains averaging 1.2% on Tuesday.

Copper has been the most active, with 7,095 lots traded as of 6.38am London time, with the rest chalking up a total of 2,879 lots. Coronavirus-related production losses and lower guidance by some major miners have underpinned prices, while LME copper stocks are at a 13-year low.

The most-traded base metals contracts on the Shanghai Futures Exchange were for the most part more bullish, the exception being October tin that was down by 0.4%. September lead and November nickel were little changed, while September zinc was up by 0.4%. September aluminium and October copper were up by 1.1% and 2.3% respectively, with the latter at 52,250 yuan ($7,544) per tonne.

Precious metals
Spot precious metals prices were down across the board by between 0.6% for palladium and 1% for platinum. Gold prices were off by 0.7% at $1,992.70 per oz.

Wider markets
The yield on US 10-year treasuries was at 0.65% this morning, this compared with 0.67% at a similar time on Tuesday. The yield is still holding above the recent base that was established between 0.5% and 0.6%.

Asian-Pacific equities were mixed this morning: the CSI 300 (-0.92%), the Hang Seng (-0.92%), the ASX 200 (+0.72%), the Nikkei (+0.26%) and the Kospi (+0.74%).

The dollar index broke lower on Tuesday and was recently quoted at 92.27, the previous low was at 92.49 from August 6. While this is supporting base metals, it is not supporting precious metals at the moment because profit-taking headwinds dominate.

Conversely, the other main currencies were consolidating after Tuesday’s stronger moves: the euro (1.1938), the Australian dollar (0.7248), the yen (105.53) and sterling (1.3256).

Key data
Economic data already out on Wednesday showed Japan’s exports fell by 19.2% year on year in July, while in the United Kingdom, consumer, producer and retail prices for July all beat expectations - see table below for more details.

Data out later includes the European Union’s current account and consumer price index and US crude oil inventories.

There is also an Organization of Petroleum Exporting Countries (OPEC) and Joint Ministerial Monitoring Committee (JMMC) meeting and the US Federal Open Market Committee will release the minutes of its last meeting.

Today’s key themes and views
Production disruptions and an apparent commodity-grab by China, which has led to stock falls in copper on the LME, are underpinning metals prices and although the current economic climate may not justify these price levels at the moment, it does look like the weight of money and a buy-to-hold mindset is keeping the rallies alive.

Overall, we remain bullish in the medium term given the amount of money that has been pumped into the financial system and that will find its way into infrastructure projects. Pullbacks are likely to be well supported by those who have not bought into the rally yet.

We remain overall bullish on gold, but short term it does look like profit-taking is taking place now. With US treasury yields firmer than of late and with record-setting equities, the opportunity cost of holding gold has climbed slightly. But the weaker dollar should become a tailwind. Overall, we expect dips will attract more buying.

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