MORNING VIEW: LME base metals prices run into dip-buying interest ahead of US Fed chairman testimony

Market participants seem to be waiting for something to provide direction and that impetus is likely to come from the testimony of the United States Federal Reserve chairman later today.

  • Market participants are counting on Fed chairman Jerome Powell to remain accommodating when testifying to Congress, with high odds that the ‘insurance cut’ of 25 basis points will be implemented in its July Federal Open Market Committee (FOMC) meeting. 
  • A firmer dollar index has kept gains in gold and silver spot prices limited but more dovish rhetoric from the Fed chairman could change sentiment towards haven assets. 

Base metals
Renewed buying pressure in the London Metal Exchange base metals complex this morning led to a 0.4% rise on average as of 06:13am London time. This is a contrast to yesterday’s weak opening, with the majority of the metals prices trading positively. LME lead was the only exception at the time of writing, down 0.1%. Meanwhile, gains were seen in LME nickel, up 0.9%, zinc up 0.8%, tin 0.5% higher, copper with a decent gain of 0.4% and aluminium up 0.2%.

Similarly, base metals prices on the Shanghai Futures Exchange were up by 0.5% on average. All metals saw gains with only the most-traded September copper contract struggling to attract bids and down 0.5%. The strongest performer was the most-traded August nickel contract, which was up 2.2%, followed by lead (up 0.5%) and the September tin contract (up 0.4%), while aluminium and zinc saw gains of 0.3% respectively.

Persistent selling pressure pushed spot copper prices in Changjiang down to 45,820-45,960 yuan per tonne, while the LME/Shanghai copper arbitrage ratio declined to 7.74.

Precious metals
Spot gold price was off by 0.2%, trading at $1,392 per oz, while silver was unchanged at $15.08 per oz at the time of writing. But the precious metals complex was up 0.1%, supported by buying pressure from platinum.

The platinum price stood at $811.30 per oz, considerably lower than the Monday July 8 high of $820 per oz. Sister-metal palladium continues to keep most of the gains made in June but appears a tad weak at $1,547.50 per oz, unchanged this morning.

The precious metals complex on the SHF was mixed, with the most-traded December gold contract down 0.1%. But that was offset by gains in silver, which was up 0.1%.

Wider markets
The spot Brent crude oil price rose to $64.96 per barrel, up 0.67% with global risk sentiment far more upbeat than at the start of the trading week.

Benchmark US 10-year treasuries are edging higher, up 1.25% to 2.0930%. But the German 10-year bund yield is still trading in record negative territory, although it has improved to -0.3200%.

While the Hang Seng index edged higher (up 0.26%) along with ASX200 index (+0.36%), the rest of the Asian equity indices remain subdued. Japan’s Nikkei was down (-0.15%), the Topix was off by 0.23% and China’s CSI300 was down by 0.29%.

This follows mixed gains in US equity indices, with the Dow Jones Industrial Average down 0.08% while the S&P500 index rose 0.12% and the Nasdaq was up 0.54%.

Not a great deal has changed on the dollar index which remain firm this morning at 97.48 at time of writing. Meanwhile, the Japanese yen continued to weaken to (108.97), a contrast to last week’s strength when it was trading at 107.52 on July 3.

The other major currencies we follow was mixed, with the euro up 0.06% at (1.1215) while the sterling has weakened to (1.2455). Meanwhile, selling continues in Australian dollar as it slides to 0.6917, down 0.16%.

The yuan hovered comfortably at 6.8838, up 0.03% this morning. We maintain the view that the risk of a weaker yuan remains as trade negotiations between the US and China is still in a gridlock, with little in the way of results so far.

Key data
Data out in the early Asian trading session saw Japanese Producer Price Index(PPI) numbers came in at a negative 0.1%, well below the market expectation of 0.4% growth. This was followed by Chinese Consumer Price Index (CPI) numbers that came in line with expectations. However, the PPI number was flat at 0% against an expected 0.3% growth.

But the main item on today’s agenda will be the notes from the latest FOMC meeting and the Fed chairman’s testimony to the House Financial Services Committee. 

Today’s key themes and views
Global risk sentiment looks fairly steady this morning and the firmer dollar index has kept upside momentum in haven assets limited for now.

With strong market expectations that the Fed chairman will maintain his dovish stance in his testimony to Congress, selling interest in the base metals complex over the past two days quickly dispersed. London Metal Exchange base metals prices surged higher in the early Asian trading session on Wednesday July 10. The upward move this morning was supported by heavier trading volumes at 7,077 lots, up from yesterday’s 4,548 lots.