MORNING VIEW: Metals wait for developments on oil, FOMC stance and trade talks

The markets were in limbo this morning, Wednesday September 18, while they wait for developments on trade talks, the direction of oil prices and the outcome of this evening’s US Federal Open Market Committee (FOMC) meeting and rate decision.

Once again the recent show of strength in most of the metals has run into resistance, suggesting confidence is not strong enough to chase prices higher and that is unlikely to change until a trade deal is struck.

  • Crude oil prices have slipped slightly after Saudi Arabia restored some of the lost production
  • Equities in Asia are mixed this morning
  • FedEx results and outlook highlight how the trade dispute is slowing the global economy

Base metals
Three-month base metals prices on the London Metal Exchange were for the most part slightly firmer this morning, the exception being aluminium which was off by 0.1% to $1,790.50 per tonne. The others were up by an average of 0.3%, with copper up by 0.4% at $5,835.50 per tonne.

Most of the metals have been giving back recent gains this week after a show of strength last week that was driven on hopes of an interim United States-China trade deal – deputy trade negotiators are meeting on Thursday, ahead of higher level meeting in October.

In China, the October lead contract on the Shanghai Futures Exchange was the main mover, with a drop of 1.2%, the November nickel and January tin contracts were down by 0.3%, while the rest were little changed, with November copper off by 0.1% at 47,340 yuan ($6,676) per tonne.

The spot copper price in Changjiang down was down by 20 yuan per tonne at 47,360-47,540 yuan per tonne and the LME/Shanghai copper arbitrage ratio was unchanged at 8.1.

Precious metals

Spot gold prices are consolidating either side of $1,500 per oz and a general air of consolidation seems to have settled over the market. Gold prices were last quoted at $1,502.08 per oz. On the charts there is a potential head-and-shoulder pattern in the yellow metal, which is potentially bearish, but with the FOMC expected to cut the Federal Funds rate by 25 basis points to 2% this evening, gold may well be able to avoid weakening further, unless the FOMC turns out to be less dovish than expected.

Wider markets
The spot Brent crude oil price was recently quoted at $64.77 per barrel, down from $68.90 at a similar time on Tuesday. Given large stockpiles and some restoration of lost output, combined with the weak economic climate, it may well be that oil prices can correct further, although any signs of a new trade deal could give oil prices second wind.

The yield on benchmark US 10-year treasuries has pulled back further after the recent relief rally – it was recently quoted at 1.7952%, compared with 1.8616% on Monday. The German 10-year bund yield has managed to strengthen further and was recently quoted at -0.4800%, compared with -0.4870% at a similar time on Tuesday.

Asian equities were mixed on Wednesday: The Hang Seng (-0.07%), the CSI 300 (+0.56%), the Kospi (+0.41%), the Nikkei (-0.14%) and the ASX 200 (-0.22%).

This follows a slightly firmer performance in Western markets on Tuesday, where in the US, the Dow Jones Industrial Average closed up by 0.13% at 27,110.80, and in Europe, the Euro Stoxx50 closed up by 0.08% at 3,521.26.

The dollar index is oscillating sideways below the early September multi-year peak at 99.38 and was recently quoted at 98.29.

As the dollar slips, the euro (1.1065) and sterling (1.2489) have found received a slight boost, while the Australian dollar (0.6847) and the yen (108.22) are slightly weaker.

Key data
Wednesday is a busy day for economic data with a wide range of UK pricing including consumer price index (CPI), there is also EU CPI and data on the Italian trade balance. US data includes building permits, housing starts and crude oil inventories.

Later there is the FOMC’s rate decision, statement, economic projections and press conference.

Today’s key themes and views

For the most part, the LME metals appear to be in waiting mode, waiting for developments on trade talks and that is likely to set the next direction. Bases seem to be in place, from which rallies could get underway, but if trade talks turn sour again then there may well be room for another sell-off.

Gold prices are looking vulnerable for now, but we would expect some volatility and direction following the outcome from the FOMC meeting.

base metals
precious metals

macroeconomic data