MORNING VIEW: LME base metals prices tread water while waiting for direction

There is some optimism in the markets because US-China trade talks are on the agenda again and expectations are running high for dovish talk from the European Central Bank (ECB) at its meeting later on Thursday July 25.

  • Manufacturing purchasing managers’ index (PMI) data out on Wednesday was generally negative, apart from a pick-up in Japan’s figure.
  • Asian equities are showing strength with China’s CSI 300 up by 0.54%.

Base metals
The London Metal Exchange three-month base metals were for the most part weaker, led by a 1.1% retreat in nickel to $14,365 per tonne. The rest were down by between 0.2% and 0.3%, the exception being tin that is up by 0.1%. Copper was down by 0.2% at $5,986.50 per tonne, little changed from where the red metal was at a similar time on Wednesday.

Volume on the LME has been low with 2,866 lots traded as at 6.20am London time, compared with an average of 4,735 lots at a similar time during the first three days of the week.

In China, base metals prices on the Shanghai Futures Exchange were unchanged to firmer, led by a 1.9% gain in September tin, with September lead and aluminium, and October nickel up between 0.8% and 1%, while September zinc and copper were unchanged, with the latter at 46,990 yuan ($6,832) per tonne.

Spot copper prices in Changjiang were up by 0.1% at 46,900-47,010 yuan per tonne and the LME/Shanghai copper arbitrage ratio was recently at 7.85, as it was at a similar time on Wednesday.

Precious metals

Spot precious metals prices were consolidating recent strength this morning, with gold and silver off by 0.2% and 0.5% respectively, while platinum and palladium prices were up by 0.5% and 0.2% respectively. Gold was recently quoted at $1,422.77 per oz, silver was at $16.51 per oz, and the gold/silver ratio was 1:86.

The December gold and silver contracts on the SHFE were weaker by 0.2% and 0.4% respectively.

Wider markets
The spot Brent crude oil price was recently at $63.36 per barrel, compared with $63.94 at a similar time on Wednesday.

The yield on benchmark US 10-year treasuries was weaker this morning at 2.0434% compared with 2.0773% at a similar time on Wednesday. But the German 10-year bund yield continues to weaken and was recently at -0.3810%, compared with -0.3470% on Wednesday morning.

In equities, Asian indices were generally firmer on Wednesday: Nikkei (0.22%), Hang Seng (0.33%), CSI300 (0.54%) and ASX200 (0.61%) – for the second day running, the exception was the Kospi that was down by 0.51%.

This follows a mixed performance in western markets on Wednesday, where in the United States the Dow Jones Industrial Average close down by 0.29% at 27,269.97, and in Europe where the Euro Stoxx50 closed up by 0.03 points at 3,532.90. The S&P 500, however, closed at an all-time high at 3,019.56.

The dollar index has pushed higher and was recently quoted at 97.71, the index breached resistance at 97.77 on Wednesday to set a fresh recent high at 97.82.

The other major currencies we track were mixed, the Australian dollar (0.6969) and euro (1.1135) were weaker, while the Japanese yen (108.11) was flat and sterling (1.2478) was slightly firmer.

Key data
Data out on Thursday includes Spanish unemployment rate, German Information and Forschung (Ifo) business climate, US durable goods orders, goods trade balance, wholesale inventories and initial jobless claims.

In addition, the ECB are setting interest rates, issuing a monetary policy statement and holding a press conference.

Today’s key themes and views
For now, we feel the base metals have either found bases, or soon will, and then it will be a case of waiting for the demand outlook to improve and that is likely to take a new trade deal between China and the US. Lead prices are looking the most eager to climb, nickel is correcting recent gains and tin prices put in a bullish outside day on Wednesday, which may well signal a low is now in place.

Gold prices are holding up well, the pullback after last week’s multi-year high has so far been limited, this despite the stronger dollar. Given the uncertainty surrounding trade, Iran, Brexit, global growth and the sustainability of record breaking US equities, there plenty of reasons why investors may like the insurance that gold offers.

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