MORNING VIEW: LME metals once again attract dip-buying, but on light volume

Base metals prices on the London Metal Exchange have attracted dip-buying this morning, Friday June 4, after weakness on Thursday when prices fell across the board by an average of 2.2%.

At the same time, prices on the Shanghai Futures Exchange were weaker this morning while they reacted to yesterday’s weakness on the LME.

  • Thursday’s strong US data, including employment data, bodes well for today’s US employment report
  • US 10-year treasuries rebounded and the dollar rallied following Thursday’s data

Base metals
LME three-month base metals prices were generally firmer this morning, with the exception of nickel ($17,900 per tonne) that was down by 0.1%, while the rest were up by an average of 0.4% - led by a 0.7% rise in copper ($9,884.50 per tonne).

Volumes traded on the LME have been relatively light with 3,488 lots trades as of 5.45am London time, compared with around 7,900 at a similar time on Thursday. A rebound on light volume is not a sign of particular strength.

The most-active SHFE base metals contracts were down across the board with losses averaging 1.7%, led by a 2.3% fall in July copper to 71,350 yuan ($11,155 per tonne).

Precious metals

Spot precious metals were weaker across the complex this morning with losses averaging 0.4%. Spot gold was down by 0.2% at $1,867.88 per oz, this after a 2% fall on Thursday.

Wider markets

The yield on US 10-year treasuries has climbed to 1.62%, having been 1.59% at a similar time on Thursday. For now the yield is range bound, but that might change once the US employment report for May is revealed later today.

Asia Pacific equities were mixed on Friday: the Nikkei (-0.5%), the Hang Seng (-0.21%), the Kospi (-0.13%), the ASX 200 (+0.46%), and the CSI 300 (+0.62%).

Currencies
The dollar index had been bouncing along the bottom over the past week or so, but it pushed higher on Thursday, and was recently at 90.58, after lows of 89.66 on Tuesday and 89.53 on May 25.

With the dollar stronger, the other major currencies were weaker this morning: sterling (1.4096), the Australian dollar (0.7661), the yen (110.24) and the euro (1.2110).

Key data
Economic data already out on Friday showed Japan’s household spending rose by 13% year on year in April, after a 6.2% rise in March.

Later there is data on the United Kingdom construction purchasing managers index (PMI), European Union retail sales and the monthly jobs report and data on factory orders from the United States. While the market is expecting a strong rise in US employment, it should be noted that last month a big number (990,000) was also expected, but the data disappointed when it came out at 266,000.

In addition to the data, European Central Bank President Christine Lagarde and US Federal Reserve Chairman Jerome Powell are scheduled to speak and there is a Group 7 (G7) meeting that continues on Saturday.

Today’s key themes and views

We thought the metals were looking a bit top heavy on Thursday so the pullbacks were not so surprising, neither is the dip-buying because generally underlying sentiment has proved to be very strong in recent months. But we will now need to wait to see what the US employment report holds and how the market reacts to that. The metals are vulnerable to profit-taking should broader markets get nervous about central bank tightening.

While the background for gold is looking increasingly bullish due to the inflationary pressures and potential for a broad-based correction, experience tells us that gold’s initial reaction to news that should be bullish for gold is often negative, while investors look to raise cash for margin calls, with the secondary reaction then bullish. We saw this happen on Thursday, we wait to see how it will react to today’s employment report.

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