MORNING VIEW: Quiet start for base metals but expect volatility ahead of US-China trade talks

China is still on holiday this morning, Monday October 7, and quiet trading has resulted in fairly mixed prices across the metals and broader markets.

We expect activity to pick up when China’s markets reopen on Tuesday, but with United States-China trade talks scheduled for Thursday and Friday, trading is likely to be nervous.

  • Markets quiet with China on holiday for Golden Week until Tuesday.
  • Focus to shift to US-China trade talks on Thursday and Friday.

Base metals
The three-month LME base metals prices were for the most part little changed this morning, with nickel the main mover with a 0.4% gain to $17,785 per tonne, while aluminium and lead are both up by 0.2% at $1,730 per tonne and $2,172.50 per tonne respectively. Copper is off by $3 per tonne at $5,670.50 per tonne. Volume on the LME has been light with 1,389 lots traded as of 7.13am London time.

Precious metals
The spot gold price, having broken lower a week ago to set a low at $1,459.18 per oz on Tuesday, rebounded to a high of $1,519.55 on Thursday, prices have since been consolidating and were recently quoted at $1,505.34 per oz. Silver continues to follow and was recently at $17.52 per oz, platinum is holding near recent lows and was recently at $877 per oz and palladium is holding up near record highs and was recently at $1,659 per oz.

Wider markets
Weaker economic data had been weighing on oil, causing the spot Brent crude oil price to fall to a low of $56.13 per barrel last Thursday – it was recently quoted at $58.33.

The yield on benchmark US 10-year treasuries has weakened further since markets remain nervous - it was recently quoted at 1.5138%, compared with 1.5318% at a similar time on Friday. The German 10-year bund yield is little changed from Friday, it was recently quoted at -0.5980%.

Asian equities were mixed on Monday: The Nikkei was down by 0.16%, the Kospi was up by 0.05% and the ASX 200 was up by 0.71%, while the Hang Seng and CSI 300 were closed.

This follows a stronger performance in Western markets on Friday, where in the US, the Dow Jones Industrial Average closed up by 1.42% at 26,573.72; in Europe, the Euro Stoxx50 closed up by 0.86% at 3,446.71.

The dollar index is little changed and was recently quoted at 98.86, compared with 98.89 at a similar time on Friday. Its overall trend is upward.

The other major currencies we follow are also consolidating: the Australian dollar (0.6751), sterling (1.2309), the yen (106.83) and the euro (1.0977).

Key data
Data out already shows China’s manufacturing purchasing managers’ index edged higher to 49.8 from 49.5, but Japan’s leading indicators eased to 91.7%, from 93.7% and German factory orders dropped by 0.6% in August, although that was worse than expected (-0.4%), it was an improvement on the 2.1% decline seen in July. Later there is data on UK house prices, U investor confidence and US consumer credit.

In addition, Federal Reserve chairman Jerome Powell is speaking this evening.

Today’s key themes and views
Against the backdrop of weak economic data, it is hard to be bullish for the base metals unless there is some concrete progress on the US/China trade talks. Given the history of disappointment over the past year or so, the market should be braced for another disappointment. But should something concrete come from the talks then a relief rally is likely to follow. As such, the market is likely to be on tenterhooks until the talks are over. This is a situation where it would be advisable to have contingency plans ready.

Gold prices are consolidating in mid-range. There are still many global issues to be settled and until they are, demand for havens is likely to remain high but the market may now be in limbo until the trade talks set the direction again.

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