MORNING VIEW: Metals prices consolidate, markets awaiting trade developments

Nickel remains in the spotlight because the market now has concrete news to adjust to and tin seems to be rising on nickel’s coattails, with Indonesia being the second largest producer of tin in the world.

The other metals and markets in general are now waiting for further news on when United States-China trade talks will resume - given generally poor manufacturing purchasing managers’ index (PMI) data that showed Japan’s and most of Europe’s manufacturing sectors in contraction and a mixed picture in China - a trade deal seems a global priority.

  • US PMI data out later on Tuesday
  • Chinese yuan (7.1815) at fresh 11-year lows

Base metals
Three-month base metals prices on the London Metal Exchange were for the most part firmer with gains averaging 0.8% this morning, though this was skewed by a 2.4% rise in nickel to $18,400 per tonne. Aluminium bucked the trend with a 0.1% fall, while copper was up by 0.2% at $5,631 per tonne.

The run-up in nickel is now justified given China imported an estimated 240,000 tonnes of nickel in ore last year and that will be hard to replace in a hurry. It is interesting that tin prices have run up too - Indonesia is the world’s second largest producer of tin and the country has a reputation of intervening in either production or exports to prevent its raw materials being squandered.

In China, the metal bucking the trend is copper where the October contract was down by 0.5% at 46,450 yuan ($6,479) per tonne, with the other main trading metal contracts were up by an average of 2.2%, skewed by a 7.5% rise in November nickel.

The spot copper price in Changjiang was down by 0.3% at 46,410-46,470 yuan per tonne and the LME/Shanghai copper arbitrage ratio moved up to 8.3, compared with 8.2 on Monday.

Precious metals
The spot gold price was recently quoted at $1,526.19 per oz, little changed from Monday’s close, but down from last week’s high at $1,550.40 per oz. The spot silver price was recently quoted at $18.48 per oz, which is up by 0.5% at from Monday’s close. Platinum and palladium prices are consolidating recent gains and were recently quoted at $936.60 and $1,540.20 per oz respectively.

Wider markets
The spot Brent crude oil price has been slipping lower and was recently quoted at $58.57 per barrel, compared with $59.14 per barrel at a similar time on Monday - the price has become rangebound between $58.30 and $61.48 per barrel.

The yield on benchmark US 10-year treasuries has firmed, it was recently quoted at 1.5089%, compared with 1.4994% at a similar time on Monday. The German 10-year bund yield is weaker at -0.7090%, compared with -0.6970% at a similar time on Monday.

Equities in Asia were for the most part weaker on Tuesday: Hang Seng (-0.29%), CSI 300 (-0.3%), the ASX200 (-0.22%) and the Kospi (-0.18%), but the Nikkei (+0.09%).

This follows a stronger performance in Europe on Monday, where the Euro Stoxx50 closed up by 0.17% at 3,432.54.

The dollar index is running higher and was recently quoted at 99.31, it was last at this level in May 2017, when it was on the way down from the January 2017 peak at 103.82.

The euro (1.0940) and sterling (1.1985) are falling, the Australian dollar (0.6719) is slightly weaker, while the yen (106.18) is holding up well.

Key data
Today’s economic data is focused on US manufacturing PMI, in addition there is data on Spanish unemployment, UK and US construction and US economic optimism. In addition, US Federal Open Market Committee member Eric Rosengren is speaking.

Today’s key themes and views
The rebound in nickel and tin seems to be providing some follow-through buying in the rest of the metals, this despite of the stronger dollar. The global economy needs a new US-China trade deal; China’s Caixin PMI data opened the possibility that domestic policy may be leading to a turnaround in economic activity and announcements that the government is trying to stimulate the economy also provides optimism. But we think it will take a new trade deal to pull the global economy out of its shallow dive.

Gold prices are consolidating and any relief in other markets could lead to some profit-taking in the yellow metal, but we should once again get a feel for how strong underlying sentiment is by seeing how deep any pullback goes in gold. So far pullbacks have been shallow.

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