MORNING VIEW: Record highs on the Dow Jones highlight surge in confidence, which underpins already strong base metals

Base metals prices on the London Metal Exchange were mixed this morning, Wednesday November 25, as were those on the Shanghai Futures Exchange, but overall they seem to be consolidating in high ground, with copper having set a fresh high for the year at $7,360 per tonne earlier this morning.

  • US president-elect Joe Biden’s transition to the White House has boosted global confidence…
  • ...this, combined with the monetary and fiscal stimulus is bullish – if a lot of it is not already baked in

Base metals

Despite setting fresh highs earlier this morning, the LME three-month copper price was down by 0.2% at $7,297 per tonne by 5.50am London time. Of the other LME three-month base metals prices, only aluminium was showing a gain, with 0.5% rise to $1,995 per tonne, while tin was unchanged at $18,660 per tonne and the rest were down between 0.1% for lead ($2,018 per tonne) and 0.5% for nickel ($16,180 per tonne).

The most-traded base metals contracts on the SHFE were split with January copper and February nickel up either side of 0.7% with copper at 54,650 yuan ($8,303) per tonne and December aluminium up by 1.4%. While the January contracts for lead, zinc and tin were down by an average of 0.6%.

Precious metals

Spot gold prices remain weak and were recently quoted at $1,805.13 per oz, down by 0.2% from Tuesday’s close. The low so far has been $1,801 per oz, some 3.7% below November 20’s close at $1,870.80 per oz. Silver ($23.17 per oz) and palladium ($2,340 per oz) were down by 0.4% and 0.5% respectively, while platinum was up by 0.4% at $964 per oz.

Wider markets
The yield on US 10-year treasuries has rebounded further, suggesting risk-on continues, it was recently quoted at 0.88% – this after 0.86% at a similar time on Tuesday.

Asia-Pacific equities were mixed this morning: the ASX 200 (+0.59%), the Nikkei (+0.5%), and the Hang Seng (+0.26%), while the CSI (-1.06%) and the Kospi (-0.62%).

The US dollar index was consolidating in low ground this morning and was recently at 92.17, this after 92.39 at a similar time on Tuesday. Support is between 92.01 and 91.73.

The other major currencies were firmer, in high ground, but below recent highs: the euro (1.1895), the Australian dollar (0.7333) and sterling (1.3345), while the yen (104.50) is weaker while haven demand weakens.

Key data
With Thursday being the United States’ Thanksgiving holiday, Wednesday has a bumper crop of US data including: preliminary gross domestic product (GDP), durable goods orders, goods trade balance, GDP price index, core personal consumption expenditures price index, wholesale inventories, revised University of Michigan data on consumer sentiment and inflation expectations, new home sales, personal income and spending data and crude oil and natural gas storage data.

In addition, the European Central Bank will publish its financial stability review, the United Kingdom will releases its autumn forecast statement and the Federal Open Market Committee latest meeting minutes will be released.

Today’s key themes and views
With LME copper setting fresh highs for the year again this morning, sentiment remains bullish and with equities scrambling higher too, the market is starting to show signs of euphoria. While it is dangerous trying to pick tops, especially with such strong trends and while the liquidity taps are on, you have to be prepared for a pullback. While we are bullish medium and long term, our concern remains that prices may have run ahead of the fundamentals and are vulnerable to a correction.

Given the euphoria in macro picture we are not surprised gold is under pressure – we expect it to correct further.




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