MORNING VIEW: Markets risk-on again as Trump’s rhetoric sounds more positive

Asian equities and most of the base metals are in positive territory after United States President Donald Trump sounded more positive on a US-China trade deal when he said talks are “moving right along”.

With the news flow on trade ebbing and flowing, the day of reckoning is likely to be whether Trump follows through with his threat to put 15% tariffs on another $160 billion of Chinese imports from December 15.

  • German industrial production fell 1.7% October – the forth fall in five months.
  • Haven assets pull-back and the Chinese yuan picks up.
  • Saudi Aramco now valued at $1.7 trillion after its initial public offering, leaping ahead of Apple and Microsoft.

Base metals

Three-month base metals prices on the London Metal Exchange were for the most part stronger this morning, Friday December 6. The exception was a 0.1% fall in aluminium, while the rest of the complex was up by an average of 0.4%. Nickel led on the upside with a 1% gain to $13,410 per tonne, while copper was up by 0.1% at $5,903.50 per tonne.

Trading volume has been light with 3,607 lots traded as at 6.35am London time.

In China, the most-traded base metals contracts on the Shanghai Futures Exchange were for the most part stronger. Like on the LME, January aluminium was the exception with a 0.7% decline, while the rest were up by an average of 0.6%, led by a 1.9% gain in February nickel. January copper was up by 0.3% at 47,290 yuan ($6,710) per tonne.

The spot copper price in Changjiang was up by 0.2% at 47,350-47,410 yuan per tonne and the LME/Shanghai copper arbitrage ratio was at 8.01.

Precious metals
Spot gold and silver prices were weaker this morning, with gold off 0.2% at $1,472.53 per oz and silver off by 0.5% at $16.87 per oz. Wednesday’s high in gold was $1,484.20 per oz.

Wider markets

The spot Brent crude oil price has rebounded in recent days, climbing back to $63.26 per barrel, this after a low earlier in the week of $60.28 per barrel. Oil producers are looking to expand production cuts from 1.2 million barrels a day to 1.7 million barrels a day until March next year.

The yield on benchmark US 10-year treasuries has climbed again as risk-on returns. It was recently quoted at 1.8090% compared with around 1.7033% at a similar time last Wednesday. The German 10-year bund yield was firmer and was recently quoted at -0.2910%, compared with -0.3580% at a similar time on Wednesday.

Asian equities were stronger across the board: the Nikkei (0.23%), the Kospi (1.02%), the Hang Seng (1.1%), the ASX 200 (0.36%) and China’s CSI 300 (0.59%).

This follows a mixed performance in Western markets on Thursday, where in the US, the Dow Jones Industrial Average closed up by 0.1% at 27,677.79; in Europe, the Euro Stoxx50 closed down by 0.32% at 3,648.13.

The dollar index is consolidating after seeing weakness each day this week – it was recently quoted at 97.40 compared with a high of 98.55 on November 29. Weak economic data seems to be behind the weaker tone.

The other major currencies we follow are either climbing, as in the case of sterling (1.3156) and the euro (1.1107), or consolidating: the Australian dollar (0.6840) and the yen (108.67).

The yuan, at 7.0308, is firmer.

Key data
Today’s key data is the US employment report. Other data out includes Italian retail sales and the University of Michigan consumer sentiment and inflation expectations.

The Organization of Petroleum Exporting Countries (OPEC), Joint Ministerial Monitoring Committee (JMMC) – the main oil producing countries – continue to meet today.

Today’s key themes and views
With the US-China trade talks still uncertain the metals have been trading their own fundamentals and reacting to either earlier overbought conditions, as in the case of nickel, zinc and lead, or to oversold conditions as in the case of tin. The swings in copper have been less pronounced, it has managed to hold up above the August-September lows and seems to be waiting for a positive trade deal.

While the Chinese purchasing managers’ index (PMI) data was constructive, the market is unlikely to get too directional again until the preliminary trade deal is signed or scuppered.

Gold prices ran up after Trump said he would not mind if a trade deal was not done until after next year’s US presidential election, but are now consolidating again. The overall trend over the past three months has been to the downside – but prices may hold up until the market knows more about whether the tariff war escalates on December 15.