MORNING VIEW: Metals, equities weaker despite FOMC’s dovishness

The weakness in metals and equities this morning, Thursday September 17, indicates markets were taking the US Federal Open Market Committee’s (FOMC) projections and comments that they will likely keep interest rates on hold through at least 2023 as suggesting there will continue to be tough times ahead in the real economy.

Does this highlight the start of a reality check where markets start to focus less on the weight of money boosting asset prices and more on the likelihood that hard economic times may weigh on many corporate earnings?

  • Base metals prices on the London Metal Exchange and Shanghai Futures Exchange were down across the board this morning, and both down by an average of 1%.
  • Pre-market major western equity index futures are indicated down by around 0.7%.
  • Passenger car registrations in the European Union down by 18.9% in August, down by 32% January-August.

Base metals
Three-month base metals prices on the LME were down between 0.3% for aluminium ($1,787 per tonne) and 1.8% for nickel ($14,945 per tonne), with copper off by 1.4% at $6,694.50 per tonne.

Volume traded on the LME has been above average – 8,400 lots had traded by 5.55am London time, this compares with an average of 3,300 lots at a similar time across Monday to Wednesday.

The most-traded base metals contracts on the SHFE were down between 0.3% for October aluminium and 2% for November nickel, with October copper down by 0.9% at 51,360 yuan ($7,593) per tonne.

Precious metals
The spot gold price was down by 0.8% at $1,944.15 per oz this morning – prices are back in the consolidation triangle on the chart where they have been since early-August – the attempt to break higher on Tuesday and Wednesday failed.

Spot silver was down by 1% at $26.86 per oz, platinum was down by 2.4% at $947.40 per oz and palladium was down by 0.8% at $2,385.70 per oz.

Wider markets
The yield on US 10-year treasuries was recently quoted at 0.68%, this compared with 0.67% at a similar time on Wednesday – being little changed it does not suggest sentiment has turned risk-off.

Asian-Pacific equities were weaker this morning: the CSI 300 (-0.93%), the Hang Seng (-1.46%), the Kospi (-1.08%), the Nikkei (-0.64%) and the ASX 200 (-1.02%).

The dollar index was still consolidating this morning, albeit at a higher level (93.42) than it was at a similar time on Wednesday, when it was quoted at 93.05. It remains in the 91.73-93.66 range where it has been all month.

With the dollar firmer, but still consolidating, the other major currencies were mixed this morning: the euro (1.1767) and the Australian dollar (0.7272) were weaker, while sterling (1.2929) and the yen (104.98) were stronger.

Key data
Today the Bank of Japan and Bank of England provide updates in their monetary policy – Japan kept its policy rate at -0.1%.

Key data out later includes EU consumer prices (CPI) with US data including the Philly Fed manufacturing index, initial jobless claims, housing starts and building permits

Today’s key themes and views

As we have been saying in recent weeks, the upward trends across the metals (and other asset classes too) appear to have run out of steam, but prices are holding up well and dips continue to attract buying. But, if upward momentum has been lost then it increases the risk of stale-long liquidation.

If there is more of a downward correction we would still expect the underlying bullish themes focused on infrastructure to provide physical support to the base metals, albeit at lower price levels.

Gold prices remain choppy and the firmer dollar is a headwind. If markets become more risk-off then gold may be initially pulled lower too, but a secondary reaction may then be bullish as money coming out of riskier assets flows in to haven assets.

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