MORNING VIEW: LME base metals prices weaker after signing of potential trade deal postponed

Reports from the United States that the signing of a partial trade deal with China may be delayed until December has deflated recent enthusiasm; a trade deal, or even a partial trade deal, is still illusive – this has been going on for 16 months now.

News of the delay seems to have put the brakes on across markets with the base metals trading either side of unchanged with no major moves, while equities are mixed across Asia and haven asset prices were firmer.

  • US-China trade talks reported to be delayed until December.
  • Gold, major government bond yields and the yen all firmer, suggesting a slight pick-up in haven asset demand.

Base metals

Three-month base metals prices on the London Metal Exchange were quiet this morning, Thursday November 7, with aluminium, nickel and lead down by 0.2% and tin and zinc up by 0.2%. Copper was up by 0.1% at $5,889.50 per tonne, which compares with $5,936.50 per tonne at a similar time on Wednesday.

Volume remains light at 3,502 lots as at 05.37am London time.

In China, the most-traded base metals contracts on the Shanghai Futures Exchange were similarly mixed, but down by an average of 0.3% this morning. The December zinc contract led on the downside with a 1.2% fall, followed by a 0.7% drop in December lead, a 0.5% drop in the December copper contract to 47,130 yuan ($6,724) per tonne, while December aluminium was off by 0.3%. December nickel and January tin were both up by 0.5%.

The spot copper price in Changjiang was down by 0.4% at 47,040-47,120 yuan per tonne and the LME/Shanghai copper arbitrage ratio was firmer at 8 compared with 7.97 at a similar time on Wednesday.

Precious metals
Spot gold prices are consolidating after Tuesday’s sell-off, and were recently quoted at $1,490.63 per oz. This is little changed from Wednesday’s close, but up from $1,484.68 per oz where they were at a similar time on Wednesday – this suggests dip-buying has once again been evident. Silver has followed gold’s lead, while the platinum group metals are firmer this morning with gains of around 3%.

Wider markets
Spot Brent crude oil prices were weaker this morning, with prices down by 0.13% from Wednesday’s close and recently quoted at $61.68 per barrel.

The yield on benchmark US 10-year treasuries has weakened again suggesting some pick-up in haven demand following the delay in the signing of a trade deal between China and the US. It was recently quoted at 1.8100%, compared with around 1.8477% at a similar time on Wednesday morning. The German 10-year bund yield was also weaker, it was recently quoted at -0.3339%, compared with -0.3180% at a similar time on Wednesday.

Asian equities were mainly firmer this morning: China’s CSI 300 (+0.14%), the Nikkei (+0.11%), the Hang Seng (-0.34%), the Kospi (+0.01%) and the ASX 200 (+1%).

This follows a mixed performance in Western markets on Wednesday, where in the US, the Dow Jones Industrial Average closed all but flat at 27,492.56; in Europe, the Euro Stoxx50 closed up by 0.33% at 3,688.74.

The dollar index is firmer and is attempting to break higher out of its recent consolidation range – it was recently quoted at 98, the October 30 high was 98.01. This consolidation has been seen after the index fell from the October 1 high at 99.67 to mid-October low at 97.12.

With the exception of the yen (108.74) that is firmer, the other major currencies we follow are weaker due to the stronger dollar: the euro (1.1059), sterling (1.2848) and the Australian dollar (0.6872.

Key data
The economic agenda is busy on Thursday with key data that includes German industrial production, United Kingdom house prices, Italian retail sales, a European Union economic forecast, with US data on initial jobless claims, natural gas storage and consumer credit.

There is also a Eurogroup meeting and the Bank of England will release its latest interest rates decision and monetary policy, which will be followed by the bank’s governor Mark Carney speaking.

Today’s key themes and views
The recent rallies in copper, aluminium lead and zinc have run out of steam, and lead, which was the strongest of the four, is leading on the downside while it corrects. Nickel has been trading its own situation and the likelihood that some ore exports from Indonesia will pick up again over the remainder of the year seem to be weighing on prices. We expect nickel to remain volatile in the months ahead. Tin continues to oscillate sideways midway within its recent $15,565-17,775 per tonne range.

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.

Gold prices have run into underlying support once again around the $1,480-per-oz level and as such prices are trading sideways within the $1,480-$1,520 range. The fact that US treasury yields and the yen are stronger too suggests a pick-up in haven interest.

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