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For now it seems as though the market has priced in as much as it wants to, given how trade rhetoric can flip-flop so easily.
Base metals Three-month base metals prices on the London Metal Exchange were either side of unchanged this morning, with the biggest movers being copper (-0.2%) and zinc (+0.2%). This put copper at $5,936.50 per tonne, while the high on Tuesday was $5,978 per tonne – just short of September’s high of $5,980 per tonne. Copper does seem to have traced out a potential “W”-shaped bottom on the charts, which may be worth watching.
Volume has been light with 2,719 lots traded as at 5.39am London time.
In China, the most-traded base metals contracts on the Shanghai Futures Exchange were mixed, but down by an average of 0.3% this morning. The December copper contract was the only one showing a significant gain, it was up by 0.4% at 47,330 yuan ($6,749) per tonne, while the rest were down between little changed for December aluminium and January tin and 0.8% for December lead, zinc and nickel.
The spot copper price in Changjiang was up by 0.3% at 47,240-47,340 yuan per tonne and the LME/Shanghai copper arbitrage ratio was weaker at 7.97 compared with 8 at a similar time on Tuesday.
Precious metals Spot gold prices are consolidating after Tuesday’s sell-off, and were recently quoted at $1,484.68 per oz, compared with $1,503.28 per oz at a similar time on Tuesday. Silver and the platinum group metals were down by between 0.1% and 0.2% this morning.
Wider markets Spot Brent crude oil prices were weaker this morning, with prices down by 0.48% from Tuesday’s close and recently quoted at $62.61 per barrel.
The yield on benchmark US 10-year treasuries has firmed again suggesting risk-on – it was recently quoted at 1.8477%, compared with around 1.8063% at a similar time on Tuesday morning. The German 10-year bund yield was also stronger, it was recently quoted at -0.3180%, compared with -0.3513% at a similar time on Tuesday.
Asian equities were mixed this morning: China’s CSI 300 (-0.4%), the Nikkei (+0.22%), the Hang Seng (+0.20%), the Kospi (+0.09%) and the ASX 200 (-0.55%).
This follows a stronger performance in Western markets on Tuesday, where in the US, the Dow Jones Industrial Average closed up by 0.11% at 27,492.63; in Europe, the Euro Stoxx50 closed up by 0.31% at 3,676.52.
Currencies The dollar index is firmer, albeit within its recent downward trend, and was recently quoted at 97.89. It is down from the October 1 high at 99.67, but above recent lows at 97.12 and 97.16.
Of the other major currencies we follow, the performance is mixed – the rebound in the dollar has weakened the euro (1.1076) and the yen (109.03), while sterling (1.2884) and the Australian dollar (0.6894) are consolidating.
Key data The economic agenda is busy on Wednesday with key data that includes German factory orders, services purchasing managers’ index (PMI) out across Europe, European Union retail sales and US releases including non-farm productivity and unit labor costs and crude oil inventories.
In addition, US Federal Open Market Committee members Charles Evans and John Williams are speaking.
Today’s key themes and views The underlying trends in copper, aluminium and zinc are upward, but recently prices have started to consolidate or edge lower. Lead has recently started to correct in a more meaningful way, with prices off by 5.4% from their highs, while tin is drifting and nickel seems set to retest lows from late-October that were around the $16,000-per-tonne level.
The situation in nickel is likely to remain volatile as low stocks and even lower on-warrant stocks could see the backwardations flare higher, but with non-LME nickel units trading at a massive discount it does seem as though the LME price is not reflecting the fundamentals.
Looking forward, we would expect there to be considerable room on the upside if a trade deal is done. But, given how the trade war has dragged on and how bargaining powers may change the closer we get to a US presidential election, we think the market is right not to get carried away until a deal has been signed.
For gold, it would seem there is rotation out of havens into risk assets, with the stronger US treasury yields and weaker yen supporting this. We wait to see how strong underlying buying is around $1,475-1,480 per oz.