MORNING VIEW: LME base metals run into dip buying again

Base metals prices on the London Metal Exchange were up across the board this morning, Tuesday August 10, this after a day of weakness on Monday – once again it looks like dips are being seen as a buying opportunity.

  • Markets focused on when central bank will start to tighten monetary policy, and to what degree will the Delta variant of Covid-19 will slow the reflation trade

Base metals
LME three-month base metal prices were up by an average of 0.7% as at 6.50am London time on Tuesday, this after a day of weakness on Monday that saw the complex close down by an average of 1.3%. When markets hang up, as most of the metals have in recent days, they become more vulnerable, so we are on the lookout to see whether the dip buying attracts follow-through buying. Copper prices dropped to a low of $9,273 per tonne on Monday, the support line today is at $9,228 per tonne.

The most-active base metals contracts on the Shanghai Futures Exchange were largely little changed this morning; the exceptions were September nickel that was down by 2% and September tin was up by 2.4%. September copper was off by 0.1% at 69,630 yuan ($10,741) per tonne.

Precious metals

Spot gold and silver prices were firmer this morning while they consolidate after Monday’s “flash crash”, with gold up by 0.2% at $1,735.03 per oz and silver up by 0.7% at $23.62 per oz – both up from Monday’s lows of $1,685.55 per oz and $22.87 per oz respectively. Platinum was up by 1.6% at $995 per oz and palladium was up by 1.1% oz at $2,628.10 per oz.

Wider markets
The yield on US 10-year treasuries was recently at 1.31%, compared with 1.3% at a similar time on Monday, this after a low last week of around 1.15%.

Asia-Pacific equities were mainly stronger this morning: the Nikkei (+0.24%), the ASX 200 (+0.32%), the Hang Seng (+1%) and the CSI 300 (+0.55%), while the Kospi (-0.53%) was weaker.

The US Dollar Index started to rebound on August 4 and then accelerated higher on August 6 following the better than expected US employment report. It was most recently at 92.96, compared with 92.75 at a similar time on Monday.

The major currencies were mainly weaker this morning on the back of the stronger dollar: sterling (1.3845), the Australian dollar (0.7332), the Japanese yen (110.37) and the euro (1.1740).

Key data
Economic data already out on Tuesday showed the British Retail Consortium retail sales monitor climbed by 4.7% year on year in July, after a 6.7% gain in June. Japan’s bank lending was up by 1% year on year in July, after a 1.4% gain in June, and the country’s economy watchers sentiment index was 48.4 in July, up from a reading of 47.6 in June – a reading below 50 shows pessimism.

Other key data out later includes the release of ZEW economic sentiment data for Germany and the European Union, with US data on the National Federation of Independent Business’ small business index, preliminary nonfarm productivity, preliminary unit labor costs and Mortgage delinquencies.

Tuesday’s key themes and views
Last Friday’s and Monday’s weakness in the base metals provided another opportunity for selling to gather momentum, but once again it looks like there is still dip buying interest around, which suggests the overall market remains robust. We are watching closely flagship copper as a potential head-and-shoulder pattern looms on the chart, which could signal weakness, but only if the pattern is triggered. If copper were to head lower then the other metals may struggle to hold up. Any weakness, however, may be short-lived because we feel the underlying long-term picture remains bullish.

After the extreme volatility in gold and silver prices on Monday, we expect the market will need time to adjust. The weaker gold price once again makes gold a cheaper haven should havens be needed. Silver has suffered relatively more than gold, with the gold/silver ratio moving up to 1:73, up from a recent low of around 1:66 in May.

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