MORNING VIEW: Metals weaker but broader market more upbeat after recent weakness

Base metals prices on both the LME and SHFE were mainly weaker this morning, Friday May 14, and seem to have got some downward momentum, even though broader markets have seen a buy-the-dip mentality emerge.

  • Asia-Pacific equities rebounded on Friday
  • US treasury yields eased as United States Federal Reserve officials stuck to their view that inflationary pressures will be transitory
  • Metals could finally be showing some signs of a slowdown in China, where loans fell more than expected

Base metals
LME three-month base metals prices were either little changed or weaker on Friday morning.

Aluminium ($2,454.50 per tonne) was up by $1 per tonne and tin ($29,150 per tonne) was down $5 per tonne, while the rest of the metals were down by an average of 0.4%, led by 0.5% falls in both copper ($10,240 per tonne) and nickel ($17,235 per tonne).

The most-active SHFE base metals contracts were down across the board for the second day running with losses averaging 1.5%, led by a 2.6% fall in nickel. Copper was down by 2% at 74,500 yuan ($11,568) per tonne.

Precious metals
Precious metals were mixed with gold ($1,825.86 per oz) and silver ($27.02 per oz) little changed, while platinum ($1,220.50 per oz) and palladium ($2,892.50 per oz) were up by 1.4% and 1% respectively.

Wider markets
The yield on US 10-year treasuries eased to 1.65% this morning, compared with 1.68% at a similar time on Thursday.

Asia-Pacific equities were stronger on Friday: the ASX 200 (+0.57%), the Nikkei (+2.24%), the Kospi (+1.18%), the CSI 300 (+2%) and the Hang Seng (+0.79%).

Currencies
The US Dollar Index rebounded mid-week, but is consolidating this morning and was recently at 90.66, having been at 90.75 at a similar time on Thursday.

With the dollar paused, the other major currencies were also consolidating: the euro (1.2095), sterling (1.4047), the Australian dollar (0.7729) and the yen (109.49).

Key data
Friday’s economic agenda is mainly focused on US data: retail sales, import prices, industrial production, capacity utilization rates, University of Michigan consumer sentiment and inflationary expectations, along with business inventories.

Today’s key themes and views
The downturn in the metals looks concerted as a correction gets under way. The metals have looked overdue a correction for some time now, so we should now get an update on how bullish underlying sentiment really is, by seeing how far prices pull back and how long they stay down. The fact bargain hunting has emerged into equities after only a few days of weakness, may mean the dip in the metals prices may also be short-lived. But there have been signs that China’s economy has been putting the brakes on for some time, with bank lending being reined in and copper premiums falling and at low levels, which may lead to a deeper correction.

Gold prices are consolidating after a significant rally. Given there are underlying concerns about inflation, regardless of what the Fed says – and a look at the huge gains in commodity prices over the past six-months to feel that – gold is probably standing ready to become more of a haven, should one be needed.

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