MORNING VIEW: Markets weaken as Trump prepared to wait for trade deal

Non-haven markets are generally under pressure after United States President Donald Trump said he was prepared to wait until after the 2020 US presidential election for a trade deal with China.

This has dented sentiment, sending gold prices and the yen higher, while US treasury yields have weakened.

  • Asian equities are weaker, led by a 1.6% fall in the Australia’s ASX 200
  • The yuan has weakened to 7.0725.

Base metals
Three-month base metals prices on the London Metal Exchange were mixed this morning, Wednesday December 4, with nickel down by 1.2% and zinc and lead up by 0.7% and 0.5% respectively, while the rest were little changed. Copper was up by 0.2% at $5,827.50 per tonne.

Trading volume has been above average with 6,376 lots traded as at 6.43am London time.

In China, the most-traded base metals contracts on the Shanghai Futures Exchange were for the most part weaker, with February nickel off heavily with a 4.1% drop and January lead down by 0.7%. Of the rest, January aluminium and copper were down by 0.1% and 0.3% respectively, with copper at 46,980 yuan ($6,660) per tonne, while January zinc and tin were up by 0.2% and 0.3% respectively.

The spot copper price in Changjiang was down by 0.1% at 47,070-47,120 yuan per tonne and the LME/Shanghai copper arbitrage ratio was at 8.06, compared with 8.03 at a similar time on Tuesday morning.

Precious metals
The precious metals prices were stronger this morning, with spot gold at $1,482.64 per oz. Silver and platinum are following gold’s lead with gains of 0.5% and 0.6% respectively, while palladium, recently quoted at $1,856.20 per oz, is holding up near record-high ground.

Wider markets
The spot Brent crude oil price continues to consolidate after November 29’s sharp fall, it was recently quoted at $61.16 per barrel, down from last week’s high of $64.30 per barrel.

The yield on benchmark US 10-year treasuries has pulled further, highlighting a pick-up in nervousness. It was recently quoted at 1.7033% compared with around 1.8300% at a similar time on Tuesday. The German 10-year bund yield was also weaker and was recently quoted at -0.3580%, compared with -0.3050% at a similar time on Tuesday.

Asian equities were weaker: the Nikkei (-1.05%), the Kospi (-0.73%), the Hang Seng (-1.24%) and the ASX 200 (-1.58%) and China’s CSI 300 (-0.03%).

This follows a weaker performance in Western markets on Tuesday, where in the US, the Dow Jones Industrial Average closed down by 1.01% at 27,502.81; in Europe, the Euro Stoxx50 closed down by 0.43% at 3,610.99.

The dollar index fell further on Tuesday and is consolidating around 97.75 this morning. If the trade deal is delayed and if more tariffs come into force on December 15, then that could hurt the US consumer and the dollar may well be reacting to that.

The other major currencies we follow are mixed, the yen (108.47) is rising for safe-haven reasons, the Australian dollar (0.6815) is weaker, the euro (1.10770 is consolidating and sterling (1.2994) is looking stronger.

Key data
Today’s economic calendar is focused on services purchasing managers’ indices (PMI) – China’s reading came in at 53.5, after a prior reading of 51.1. Other PMI data is out across Europe and the US later.
In addition, there is US data on non-farm employment change and crude oil inventories. US Federal Open Market Committee member Randal Quarles is also speaking.

Today’s key themes and views
More verbal posturing by Trump has spooked the markets. For the base metals on the LME, most are oscillating sideways within their wide September to early-November ranges, although zinc is getting close to testing the low of the range, while tin is the only metal seeing some gains. Nickel and lead that surprised on the upside over the summer, have in recent months been in full retreat.

Gold prices are rising while trade worries prompt risk-off, it would take a move above $1,493 per oz to signal a break up through the downward trend line that has dominated over the past three months. The direction of trade talks is expected to set the direction for gold.