MORNING VIEW: Metals fail to catch risk-on appetite seen in equities

While equity markets in the United States have pushed up to and are holding near record highs, the industrial metals are by comparison weak.

This suggests global industry is still unsure about whether a post-trade war rebound is on the cards, or whether a trade deal will even emerge.

  • Haven assets are back in demand while trade uncertainty dominates.
  • London Metal Exchange three-month nickel price falls, while rest of the complex rises.

Base metals

Three-month base metals prices on the LME were for the most part firmer on the morning of Tuesday November 19, although the underlying short-term trends remain to the downside. Nickel was down by 0.6% this morning at $14,685 per tonne, but the rest of the complex was up by an average of 0.3% – led by a 0.7% gain in tin, while copper was up by 0.2% at $5,830.50 per tonne.

Traded volume has been below average with 4,182 lots traded as at 6.04am London time.

In China, the most-traded base metals contracts on the Shanghai Futures Exchange were mixed, with February nickel and January lead leading on the downside with drops of 1.4% and 1.2% respectively. January copper was off by 0.1% at 46,840 yuan ($6,671) per tonne. The other SHFE base metals were up by an average of 0.3%.

The spot copper price in Changjiang was down by 0.2% at 46,900-47,000 yuan per tonne and the LME/Shanghai copper arbitrage ratio was recently at 8.03.

Precious metals
The precious metals are edging higher because demand for haven assets has picked up again in recent days. Spot gold prices were unchanged at $1,472.10 per oz this morning, but up from lows at $1,445.68 per oz on November 12. Silver, platinum and palladium are all following gold’s lead.

Wider markets
The yield on benchmark US 10-year treasuries has fallen back and was recently quoted at 1.8094%, compared with around 1.8366 % at a similar time on Monday morning. The German 10-year bund yield was also slightly weaker and was recently quoted at -0.3360%, compared with -0.3320% at a similar time on Monday.

Asian equities were mainly mixed this morning: the Nikkei (-0.53%), the Kospi (-0.34%), the Hang Seng (+1.25%), the ASX 200 (+0.70%) and China’s CSI 300 (+0.94%).

This follows a mixed performance in Western markets on Monday, where in the US, the Dow Jones Industrial Average up by 0.11% at 28,036.22, the S&P 500 closed up by 0.05% at 3,122.03, and in Europe, the Euro Stoxx50 closed off by 0.18% at 3,704.92.

The dollar index has been falling in recent days and was recently quoted at 97.76, this after a strong run over the past two weeks that had seen it rise from a low of 97.16 on November 4 to 98.40.

With the dollar weaker, the euro (1.1079) and sterling (1.2968) have been climbing, while the Australian dollar (0.6800) and the yen (108.65) have been consolidating.

The yuan, at 7.0229, is weaker, compared with its recent show of strength to 6.9670 on November 7.

Key data
Data out on Tuesday includes data on the United Kingdom’s industrial order expectations and US figures on housing starts and building permits.

In addition, US Federal Open Market Committee member John Williams is speaking.

Today’s key themes and views
The short-term downward trends across the base metals seem to be dominating for now, but we do see these as countertrend moves, assuming a partial trade deal between the US and China is announced before too long. Any actual deal could well boost business confidence and lead to some restocking along the supply chain, which could give apparent demand a much needed boost.

But given how elusive a trade deal has been over the past year, it does look as though the market is waiting for an actual deal to be signed before reacting. This would explain the divergence between base metals and equities.

Gold prices, along with other haven assets, have been firmer in recent days, but basis the above, any trade deal is likely to revive investor confidence, which in turn is likely to see the opportunity cost of holding gold increase. The weaker dollar is also a supporting factor for gold.

base metals
precious metals

macroeconomic data