MORNING VIEW: Metals prices look well placed to advance, but lack energy

Broader markets are generally still upbeat this morning, Tuesday December 17, with equities in Asia following the lead from western markets on Monday, although the metals are for the most part consolidating.

The fact the metals are holding on to recent gains is impressive considering Monday’s flash purchasing managers’ index (PMI) data out across Europe and the United States was generally weak. It seems the market was, however, encouraged by the stronger-than-expected Chinese industrial production and retail sales data.

  • Market still wanting to know the details of the preliminary US-China trade deal.

Base metals
Three-month base metals prices on the London Metal Exchange were mainly firmer this morning, the exception was nickel that was off by 0.2% at $14,210 per tonne. The rest of the complex was up by an average of 0.4%, led by a 0.9% gain in lead, which is reclaiming the $1,900-per-tonne level. Copper was up by 0.2% at $6,206 per tonne.

Trading volume has been average with 5,222 lots traded as at 6.58am London time.

In China, the most-traded base metals contracts on the Shanghai Futures Exchange were also mainly firmer, the exceptions were February zinc and lead that were down by 0.3% and 0.8% respectively. The rest were up by between 0.3% for February nickel and 0.7% for the February contracts of copper and aluminium, with the former at 49,270 yuan ($7,058) per tonne.

The spot copper price in Changjiang was up by 0.6% at 48,950-49,050 yuan per tonne and the LME/Shanghai copper arbitrage ratio was at 7.94, little changed from 7.93 at a similar time on Monday morning.

Precious metals
The precious metals are holding up well near the upper levels of their recent ranges. The fact the spot gold price (recently at $1,476.40 per oz) has not retreated on the trade deal news is interesting, it may be investors are still holding on to the exposure to gold in case the details of the deal disappoint.

Wider markets
The spot Brent crude oil price is pushing higher, it was recently up by 0.25% at $65.43 per barrel, compared with Monday’s close.

The yield on benchmark US 10-year treasuries has firmed, which also suggests some reduction in haven interest. It was recently quoted at 1.8630% compared with around 1.8386% at a similar time on Monday. The German 10-year bund yield was little changed and was recently quoted at -0.2939%, compared with -0.2900% at a similar time on Monday.

Asian equities were for the most part stronger this morning: the Nikkei (+0.47%), the Hang Seng (+1.08%), the Kospi (+1.27%) and China’s CSI 300 (+1.36%), while the ASX 200 (-0.04%) was lagging.

This follows a stronger performance in Western markets on Monday, where in the US, the Dow Jones Industrial Average closed up by 0.36% at 28,235.89; in Europe, the Euro Stoxx50 closed up by 1.12% at 3,772.74.

The dollar index broke lower on December 12 but it has since bounced - it was recently quoted at 97.15, compared with December 12’s low of 96.60.

Sterling (1.3257) is also correcting after the United Kingdom-election rally as Prime Minister Boris Johnson is using his majority to create a fixed date for when the transition period with Europe ends and if no agreement has been reached by then, then it would suggest a hard Brexit.

The euro (1.1141) is consolidating, the Australian dollar (0.6855) is weaker, as is the yen (109.58), which is another sign that havens are not in demand so much.

The Chinese yuan (7.0005) is giving back some of December 13’s gains when it reached a multi-month high of 6.9588.

Key data
Today is another busy data for economic data with employment data out of the UK, trade balance data out of Italy and the European Union, with key US data including housing starts, building permits, industrial production, capacity utilization, job openings, and economic optimism.

In addition, US Federal Open Market Committee member Eric Rosengren and Bank of England governor Mark Carney are speaking.

Today’s key themes and views
For now, the macro positives (trade deal and better Chinese economic data) outweigh the uncertainties over what the details of the trade deal are, and that is providing a light tailwind for the base metals. But, given the markets are likely to quieten down as the week progresses, there does not seem to be too much energy to chase prices higher, just yet.

The fact that the gold price is holding up also suggests there is still some nervousness about the details of the trade deal.

base metals

precious metals

macroeconomic data

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