MORNING VIEW: Some optimism on US-China trade talks provides support, but markets await concrete developments

There is some cautious optimism over United States-China trade negotiations after US President Donald Trump described the talks as “very, very good” and said he would meet Chinese Vice Premier Liu He in the White House on Friday October 11.

But, we have been here before so it is probably best not to anticipate too much – indeed, with the base metals generally rangebound this morning that seems to be what investors are doing.

  • Asian equities are firmer across the board
  • Haven assets are consolidating while they wait for further news on trade talks

Base metals

Three-month base metals prices on the London Metal Exchange were mixed this morning, the main movers were aluminium (-0.4%) at $1,742.50 per tonne, zinc (+0.4%) at $2,379.50 per tonne and tin (-0..3%) at $16,395 per tonne. Volume has been below average with 4,110 lots trades as at 6.58am London time.

Copper and zinc prices moved up on Thursday, but that was more likely due to news of further supply disruptions with Vedanta to start a four-month shutdown of its Skorpion zinc refinery in November and MMG’s Las Bambas copper mine in Peru facing road blocks again.

In China, the most-traded base metals contracts on the Shanghai Futures Exchange were mixed this morning. November zinc led on the upside with a 1% gain, followed by December copper that was up by 0.9%, while November aluminium dropped by 0.6% and November nickel climbed 0.6%. November lead and January tin were little changed.

The spot copper price in Changjiang was up by 0.7% at 46,960-47,070 yuan ($6,595-6,611) per tonne and the LME/Shanghai copper arbitrage ratio was 8.15, compared with 8.18 at a similar time on Wednesday.

Precious metals
Spot gold prices were rangebound this morning, trading either side of $1,500 per oz, as was silver – these havens are drifting aimlessly while they wait for direction.

As a new trade deal would no doubt pump much-needed oxygen into the auto market, it does look as though palladium users are not taking any chances – prices set a fresh record high this morning at $1,706 per oz. Platinum prices were also firmer, up by 0.9% at $903.80 per oz.

Wider markets
Spot Brent crude oil prices were edging higher too and were last quoted at $60.11 per barrel, up by 0.96% from Thursday’s close at $59.54 per barrel.

The yield on benchmark US 10-year treasuries firmed too as some risk-on has returned – it was recently quoted at 1.6570%, compared with 1.5300% at a similar time on Wednesday. Likewise, the German 10-year bund yield is firmer too, it was recently quoted at -0.4790%, compared with -0.5870% at a similar time on Wednesday.

Asian equities were stronger on Friday: the Nikkei (+1.15%), the Hang Seng (+2.32%), the Kospi (+0.81%), the ASX 200 (+0.91%) and the CSI 300 (+1.06%).

This follows a stronger performance in Western markets on Thursday, where in the US, the Dow Jones Industrial Average closed up by 0.57% at 26,496.67; in Europe, the Euro Stoxx50 closed up by 0.92% at 3,493.96.

The dollar index was weaker at 98.61, it has broken recent lows at 98.63, but is still firmly in an upward trend.

The other major currencies we follow, with the exception of the yen (108.01), are rallying: the euro (1.1017), the Australian dollar (0.6778) and sterling (1.2450). The yen seems to be losing haven buying because risk-on has picked up.

Key data
On Friday there is economic data on the German consumer price index, US import prices and the University of Michigan’s readings on consumer sentiment and inflation expectations. But, the main focus will be on the outcome of today’s trade talks.

In addition, US Federal Open Market Committee member Eric Rosengren is speaking.

Today’s key themes and views
As European trading gets underway it does look as risk-on is picking up momentum, with the German DAX up 0.9% in early trading, but the base metals on the LME are treading water and seem to be waiting for concrete news on trade talks. We expect some volatile trading on Friday that is likely to flow into early next week.

Gold prices, like the base metals, are likely to be driven by how the trade talks go, although reports of an explosion on an Iranian oil tanker in the Red Sea could underpin gold prices in the short term.

base metals
precious metals

macroeconomic data