MORNING VIEW: LME base metals prices consolidate as macro-headwinds persist

Although rate cut expectations encouraged the London Metal Exchange three-month base metals prices to move higher yesterday, they have started to weaken in early trading today, Thursday July 11, and been unable to attract follow-through buying.

  • In his prepared remarks, Federal Reserve Chairman Gerome Powell last night noted that uncertainties since the June FOMC meeting continued to dim outlook and on-going concerns about global economy has weighed on the US economy. 
  • The dollar index weakened following the dovish remarks from the Fed Chairman and provided a conducive environment for gold price to surge past the psychological price level of $1,400 per oz again on Wednesday July 10.

Base metals
The London Metal Exchange base metals complex was off by 0.2% on average in the morning of Thursday July 11. Buying pressure has subsided, with all of the metal’s price edging lower bar LME nickel, up 0.3% following from the comments from Indonesia Minister of Energy and Mineral Resources that the country will stop exporting nickel ores in 2022. LME copper, aluminium and zinc price were off by 0.4%, tin was down 0.2% and lead was unchanged.

The base metals prices on the Shanghai Futures Exchange moved higher, up 0.6% on average. The most-traded August nickel contract showed no sign of slowing, up a solid 2%, while copper regained its buying rhythm, up 1.5%. Lead was 0.9% higher while aluminium gained 0.5%. However, the September zinc and tin contracts were down 0.1% and 1.3% respectively.

Spot copper prices in Changjiang were up to 46,500-46,580 yuan per tonne while the LME/Shanghai copper arbitrage ratio edged higher to 7.83.

Precious metals
The yellow metal put in a strong close too and follow-up buying this morning saw the price traded as high as $1,427.03 per oz, up 0.1% at the time of writing. Meanwhile, silver saw solid gains too but buying pressure has subsided this morning, and the price is down 0.1% at $15.24 per oz.

Overall, the precious metals complex is up by an average of 0.1%. The platinum price now trades at $826.10 per oz, higher than Monday July 8’s high of $820 per oz. Sister-metal palladium price has surged past the $1,600 price level and is up 0.38% this morning.

Similarly, the precious metals complex on the SHFE saw strong gains, with the complex up 1.3%. The most-traded December gold contract was up 1.7%, while silver was up 0.9%.

Wider markets
News report that Iranian boats attempted to intercept a British oil tanker near the Gulf has sent the spot Brent crude oil price higher. Tensions in the region remain high following from last week’s seizure of an Iranian oil tanker by British Royal Marines in Gibraltar. the Brent crude oil price was trading at $67.24 at the time of writing, up 0.81%.

Benchmark US 10-year treasuries are under fresh downside pressure again, down 0.99% to 2.0379%, an indication that global investors have quickly turned their back against risk asset again. The German 10-year bund yield still trades in record negative territory but is unchanged from yesterday, standing at -0.3200%.

On the global equity front, major Asian indices edged higher in the early Asian trading on Thursday July 11. Leading the complex is Hang Seng index (+0.71%) followed by the Nikkei (+0.51%), the Topix (+0.47%) and the ASX200 index (+0.39%). The only exception was China’s CSI300 index which was off by (-0.24%).

This follows from overnight gains in US equity indices, with the Nasdaq up 0.75%, the S&P500 up 0.45%, and the Dow Jones industrial average up 0.29%.

The weaker dollar index, which was last trading below 97.00, has provided upside pressure on a basket of currencies that we follow. The Japanese yen has strengthened to 108.01, a contrast to yesterday’s weakness when it was trading near 109.

The other major currencies we follow was stronger, with the euro up 0.09% at 1.1269, while  sterling rose to 1.2527. Some buying pressure has emerged in the Australian dollar as it edged higher to 0.6972, up 0.12%. Meanwhile, the yuan also strengthened to 6.8626, up.09% this morning.

Key data
Data out in the early Asian trading session saw the Japanese tertiary industry number come below market expectation at negative 0.2%. The German final CPI number was in line with expectations at 0.3%.

In notable data today, the latest US Consumer Price Index numbers and the Financial Stability Report from the Bank of England are set to be released.

Today’s key themes and views
Global risk sentiment looks fairly jaded this morning after feeding off another round of false optimism.

Instead, we are in the view that the behaviour of base metals prices these past days has beenn far too optimistic, complacent and inherently irrational. Strong gains yesterday were fuelled by the already-expected rate cut talk and trade talks restarts between the United States and China. As such, we think that a great deal of the false optimism has been factored into the price and now envisage the market reverting back to its prevailing downward trend.