MORNING VIEW: LME base metals prices rebound, but remain vulnerable with equities jittery

Base metals prices on the London Metal Exchange have rebounded this morning, Tuesday September 22, after weakness in equities on Monday dragged them lower.

At the time of our Morning View report on Monday, the LME metals were up by an average of 0.2%, but they ended the day down by an average of 1.6% after concerns escalated about second waves of Covid-19 spreading across Europe.

But an across-the-board rebound on the LME this morning suggests sentiment in the metals markets is strong, while dips have once again been bought. The metals still look vulnerable, however.

  • Precious metals sold off on Monday while risk-off escalated and as the US dollar rebounded.
  • Asian-Pacific equities were weaker this morning.

Base metals
Three-month base metals prices on the LME were up by between 0.2% for tin ($18,115 per tonne) and 1.1% for copper ($6,755 per tonne), with the complex up by an average of 0.6%.

Volumes traded on the LME has, however, been average with 4,570 lots traded by 5.44am London time, compared with 3,322 lots traded at a similar time on Monday.

The most-traded base metals contracts on the Shanghai Futures Exchange were mixed while they reacted to Monday’s weakness on the LME; copper, aluminium, zinc and nickel were all down by an average of 0.9%, with November copper at 52,020 yuan ($7,663) per tonne, while October lead and November tin were up by 0.8% and 0.4% respectively.

Precious metals
We have been saying in recent weeks that markets have been looking for direction and spot gold made its move on Monday, with prices falling to a low of $1,883.25 per tonne. Prices did rebound to close at $1,913.10 and were little changed this morning at $1,913.67.

Spot silver at one stage on Monday was down by 11% at $23.75 per oz, it was last at $24.65 per oz. Platinum was up 1.1% this morning at $890 per oz, having been as low at $855.50 per oz on Monday, while palladium was up by 0.9% this morning at $2,298.50 per oz, having been as low as $2,247.50 on Monday.

Wider markets
The yield on US 10-year treasuries was recently quoted at 0.67%, this compared with 0.69% at a similar time on Monday – the yield has been quite contained in recent weeks and does not seem to be reflecting much risk-off.

Asian-Pacific equities were weaker this morning: the CSI 300 (-0.14%), the Hang Seng (-0.58%), the Kospi (-2.65%) and the ASX 200 (-0.52%). The Nikkei was closed.

Currencies
The dollar index rebounded strongly on Monday and was consolidating this morning; it was recently quoted at 93.63, down from 92.82 at a similar time on Monday.

The other major currencies were weaker this morning: the euro (1.1755), the Australian dollar (0.7211), sterling (1.2802) and the yen (104.54).

Key data
Key data out Tuesday includes industrial order expectations from the Confederation of British Industry (CBI), China’s leading indicators, European Union consumer confidence and US data on existing home sales and Richmond manufacturing index.

In addition, Bank of England governor Andrew Bailey is scheduled to speak and Federal Reserve chair Jerome Powell is testifying before the House Financial Services Committee.

Today’s key themes and views
While this morning’s rebound in LME prices has provided support, the charts show prices are either flat-lining in high ground, as is the case in copper, aluminium and tin, or trending lower as in the case of lead and nickel, while zinc is being a more erratic.

With equities and precious metals showing their hand in recent days by breaking lower, the base metals are likely to experience considerable headwinds and may end up seeing more weakness while markets undergo a bout of risk-off.

We said yesterday if equities weaken further then there may be an initial downward move in gold, but we would then expect a secondary reaction to the upside while money rotates out of equities and into havens. We are now waiting to see if there is further weakness before the buying emerges.

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