MORNING VIEW: Pullback in LME base metals runs into dip-buying

After further weakness in the base metals on Monday January 11, that saw the complex close down by an average of 1.5%, prices were up across the board on the London Metal Exchange this morning but those on the Shanghai Futures Exchange base metals prices were down across the board while they followed yesterday’s performance on the LME.

  • Asian-Pacific equities were mixed this morning
  • Gold prices were rebounding this morning, after a four-day sell-off
  • US treasury yields continue to rise

Base metals
Three-month base metals prices on the LME were up by an average of 1% this morning, led by a 2.6% rebound in nickel prices that were recently quoted at $17,655 per tonne, after a low of $17,040 per oz on Monday. Copper was up by 1.7% at $7,980.50 per tonne, after Monday’s low of $7,838 per tonne, aluminium was little changed at $2,011 per tonne, while the rest were up by an average of 0.7%.

The most-traded base metals contracts on the SHFE were weaker across the board, down by an average of 1.1% while they caught up with Monday’s sell-off on the LME. February copper was down by 1.1% at 58,820 yuan ($9,074) per tonne.

Precious metals
Spot gold was up by 0.7% this morning at $1,859.83 per oz, this after a low on Monday of $1,819.15 per oz. Spot silver and platinum were both up by 1.7% at $25.45 per oz and $1,067 per oz respectively, while palladium was up by 0.3% at $2,387.50 per oz.

Wider markets

The yield on US 10-year treasuries continues to rise and was recently quoted at 1.15%, compared with 1.10% at a similar time on Monday.

Asia Pacific equities were mixed: the ASX 200 (-0.27%), the Kospi (-0.71%), the CSI (+2.85%), the Nikkei (+0.09%) and the Hang Seng (+0.97%).

The US Dollar Index was treading water this morning and was recently quoted at 90.38, this after a high on Monday at 90.73.

The other major currencies were generally consolidating this morning: the euro (1.2171), the Australian dollar (0.7730), sterling (1.3566) and the yen (104.11).

Key data

Economic data already out on Tuesday showed UK retail sales, as calculated by the British Retail Consortium (BRC), grew by 4.8% year on year in December, after a 7.7% rise in November, and Japan’s economy watchers sentiment index fell to 35.5 in December, from 45.6 in November.

Data out later from the United States includes the National Federation of Independent Business (NFIB) small business index for December, economic optimism for January from Investor’s Business Daily (IBD), TechnoMetrica Institute of Policy and Politics (TIPP) and Jolts job openings.

In addition, UK Monetary Policy Committee member Ben Broadbent and US Federal Open Market Committee member Lael Brainard are scheduled to speak.

Today’s key themes and views

After a bout of weakness in recent days in the base metals, once again we are seeing the dip attracting buying and if that remains the case then it will just go to show that underlying sentiment remains strong. The prospect for more stimulus spending in the US may well help underpin the base metals.

Gold prices fell 7.1% over a four-day period ending yesterday and a rebound is now underway, this despite stronger US treasury yields. Again, like the base metals, it looks like underlying support for gold remains strong, suggesting commodities in general remain in favor with investors.

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