MORNING VIEW: LME base metals prices mixed with aluminium following zinc lower

Base metals prices on the London Metal Exchange were mixed this morning, Tuesday January 19, but aluminium prices have followed recent weakness in zinc, breaking support levels in the process.

  • The rebound in the dollar in recent weeks seems to be acting as a headwind

Base metals
Three-month base metals prices on the LME were mixed this morning, with aluminium, nickel and lead weaker and down by an average of 0.3%, while the others were up by an average of 0.3%. Copper led on the upside with a 0.4% rise to $7,974.50 per tonne and aluminium led on the downside with a 0.4% fall to $1,962.50 per tonne. Like zinc ($2,676 per tonne) that broke support at the end of last week at $2,722 per tonne, aluminium has breached support this morning at $1,976 per tonne.

The most-traded base metals contracts on the Shanghai Futures Exchange were also mixed this morning, with the March contracts for aluminium and lead down by 1.2% and 1.4% respectively, while the March contracts for tin, zinc and nickel were up by 1.2%, 0.4% and 0.2% respectively and March copper was up by 0.1% at 58,780 yuan ($9,055) per tonne.

Precious metals
Spot gold was up by 0.1% at $1,839.28 per oz this morning, silver ($25.16 per oz) and platinum ($1,095 per oz) were up by 0.8% and 0.6% respectively, while palladium was up by 0.1% at $2,379.50 per oz.

Wider markets
The yield on US 10-year treasuries has found support around the 1.10% level, where it was this morning, compared to 1.08% at a similar time on Monday.

Asian-Pacific equities were mixed, albeit with an upside bias this morning: the Kospi (+2.61%), the Nikkei (+1.39%), the ASX 200 (+1.19%), the Hang Seng (+2.02%) and the CSI (-1.47%).

The US Dollar Index was holding up near recent highs and was recently quoted at 90.75, this after 90.86 at a similar time on Monday and up from the recent low at 89.21 on January 6.

The other major currencies were mainly slightly firmer this morning: the euro (1.2087), the Australian dollar (0.7704) and sterling (1.3590), although the yen (104.05) was weaker.

Key data
Economic data already out shows Germany’s final consumer price index climbed by 0.5% month on month, which was in line with expectations.

Later there is data on the European Union’s current account, Italy’s trade balance, EU and Germany economic sentiment from Zentrum fur Europaische Wirtschaftsforschung (ZEW) and US Treasury International Capital (TIC) long-term purchases.

In addition, UK Monetary Policy Committee member Andy Haldane is scheduled to speak.

Today’s key themes and views
With aluminium turning lower and following zinc’s downward move, it does raise the odds that sentiment may be weakening and a loss of momentum on the upside is leading to some long liquidation. Given the gains and the drawn-out upward trends of recent months, we should not be surprised by some countertrend moves. That said, tin and nickel were setting or matching recent highs only recently, so maybe the individual metals will follow their own courses for a while.

Overall, we think we are in a long-term bull market but corrections should be expected along the way and we will find out from the depth and durability of any pullback just how strong underlying sentiment is.

Gold prices remain in the middle of their sideways-to-lower trading range, suggesting prices continue to consolidate their September 2018 – August 2020 bull run that saw prices rise by 78% to $2,074 per oz, from $1,160 per oz. The current range from the down channel runs between $1,716 and $1,886 per oz, so there is considerable room for volatility.

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