MORNING VIEW: Sentiment in metals remains bullish as dips bought

This time yesterday base metals prices were down across the board, but with the exception of Shanghai Futures Exchange tin, they were all up during morning trading on Friday September 18 – showing sentiment remains bullish overall with dips being bought.

This suggests prospects for increased demand for metals from infrastructure projects is driving sentiment and the market is not so concerned by the gains already seen, the uncertainty over the US presidential election and the potential for President Donald Trump to step up the rhetoric against China ahead of the election.

  • Oil prices are rebounding strongly this week; Brent Crude was recently at $44.17 per barrel, this after a low of $39.32 per barrel on September 8.

Base metals
Three-month base metals prices on the London Metal Exchange were up across the board with gains averaging 0.7%, led by a 1.3% rise in zinc to $1,915.50 per tonne, while the rest were up between 0.2% for nickel ($15,135 per tonne) and 0.7% for lead ($1,915.50 per tonne). Copper was up by 0.6% at $6,835.50 per tonne.

Volumes traded on the LME remain elevated – 6,262 lots had traded by 5.41am London time, this compares with an average of 8,400 lots at a similar time on Thursday, when prices were down across the board.

The most-traded base metals contracts on SHFE, other than November tin that was down by 0.5%, were up between 0.1% for November nickel and 1.8% for October zinc. October copper was up by 1.4% at 52,190 yuan ($7,710) per tonne.

Precious metals

The spot gold price was up by 0.3% at $1,952.24 per oz this morning, prices are back in the consolidation triangle on the chart where they have been since early-August.

Spot silver was up by 0.1% at $27.08 per oz, platinum was up by 0.6% at $942 per oz and palladium was up by 0.7% at $2,351.90 per oz. The platinum group metals fell by over 3% on Thursday, this probably due to the weak vehicle sales data out of Europe.

Wider markets
The yield on US 10-year treasuries was recently quoted at 0.68%, this was unchanged from a similar time on Thursday – the yield has been quite contained in recent weeks, suggesting a market waiting for direction, which seems to be the case across most asset classes.

Asian-Pacific equities were for the most part firmer this morning: the CSI 300 (+0.91%), the Hang Seng (+0.37%), the Kospi (+0.08%) and the Nikkei (+0.11%), the exception was the ASX 200 (-0.04%).

The dollar index was consolidating this morning, albeit at a lower level (92.90) than it was at a similar time on Thursday, when it was quoted at 93.42. Weaker US economic data on Thursday seems to have weighed on the dollar.

With the dollar weaker, the other major currencies were firmer: the euro (1.1853), the Australian dollar (0.7314), sterling (1.2957) and the yen (104.81).

Key data
Data already out on Friday showed Japan’s core consumer price index dropped by 0.4% in August, this after being flat in July.

Key data out later includes Germany’s producer price index, the United Kingdom’s retail sales and the European Union’s current account.

US data releases include the current account, leading indicators and preliminary data on consumer sentiment and inflation expectations from the University of Michigan.

Today’s key themes and views

So for the base metals, dips continue to be bought and that has led to copper setting a fresh high at $6,850 per tonne, the highest prices have been since June 2018, which was when copper prices were starting to react negatively to the United States-China trade war – they had peaked earlier in June at $7,348 per tonne.

The rest of the base metals complex are still broadly consolidating and have lost upward momentum, but given the likelihood that more infrastructure spending will feed through to actual demand, then they may well follow copper higher.

Gold prices remain choppy but got some support from the Thursday’s weaker dollar. With some weaker economic data affecting US sentiment that could feed through to weaker equities, while industrial commodities, including oil, are looking robust, then gold may well get carried higher with the commodity tide.

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