MORNING VIEW: Weakness in tech stocks weighing on sentiment in metals

United States-based electric vehicle maker Tesla’s failure to be listed as an S&P 500 company led to a 20% share price fall on Tuesday September 8, that in turn led to a 4% fall in the Nasdaq index – markets are wondering whether this will be a catalyst for a broader reality check? Or just provide another dip-buying opportunity?

Base metals prices on both the London Metal Exchange and Shanghai Futures Exchange were for the most part weaker on Wednesday morning, as were Asian-Pacific equities, although some pre-market major western equity index futures were showing slight gains – suggesting some early bargain-hunting.

  • Gold prices rebounded and the yield on US ten-year treasuries fell, suggesting pick-up in haven interest.
  • One leading Covid-19 vaccine trial has been paused following an unexplained illness in one of the test participants.
  • Crude oil prices have turned lower since the start of the month, with Brent falling 7% on Tuesday to $39.71 per barrel.

Base metals

Three-month base metals prices on the LME were for the most part weaker this morning, the exception was copper that was up by 0.1% at $6,713.50 per tonne. The rest of the complex was down by an average of 0.3%, with nickel ($14,860 per tonne) leading the way with a 0.5% fall.

Trading volume has, however, been light with 3,494 lots traded as of 5.48am London time, this compares with an average of 6,013 lots at a similar time across Tuesday to Friday last week.

The most-traded base metals contracts on the SHFE were down across the board by an average of 1.6%, with October zinc and lead and November nickel all down by 2% or more. October copper was down by 0.6% at 52,210 yuan ($7,631) per tonne.

Precious metals
The spot precious metals were firmer across the board this morning; gold was up by 0.1% at $1,932.20 per oz – this after a spike down to $1,906.65 per oz on Tuesday, while silver ($26.72 per oz) was up by 0.6%, platinum ($907.70 per oz) was up by 1.2% and palladium ($2,283.10 per oz) was up by 0.8%.

Wider markets
The yield on US 10-year treasuries was recently quoted at 0.67%, this after 0.72% at a similar time on Monday.

Asian-Pacific equities were down across the board this morning: the CSI 300 (-1.51%), the Hang Seng (-0.6%), the Nikkei (-1.01%), the Kospi (-0.75%) and the ASX 200 (-2.16%).

The dollar index is consolidating this morning; it was recently quoted at 93.45 – the index is near recent highs and up from the early September low at 91.73.

With the dollar off rebound highs, the other main currencies were mixed: the euro (1.1777) and the Australian dollar (0.7221) were off recent lows this morning, albeit on a back foot, sterling (1.2963) is trending lower and the yen (105.94) is firmer while it picks up some haven interest.

Key data
Data out already on Wednesday showed Japan’s M2 money supply increased by 8.6% year on year in August, this after a 7.9% rise in July. China’s consumer price index (CPI) and producer price index (PPI) were mixed with CPI rising by 2.4% in August after a 2.7% rise in July, while PPI by fell 2% after a 2.4% drop over the same comparison.

Data out later includes Japan’s preliminary machine tool orders and US job openings.

Today’s key themes and views
The rallies in the base metals have paused to varying degrees, with copper holding up the best, helped by the steep and steady fall in LME stocks. Aluminium and tin are holding up relatively well, while zinc, lead and nickel are seeing prices retreat.

The weakness in equities in recent days may well dampen sentiment in other markets and a loss of upward momentum could prompt profit-taking. Given prospects for earlier infrastructure spending announcements to turn into actual orders as time passes, we would expect corrections to be fairly short-lived, but markets could become less directional and more choppy for a while.

Gold prices are rangebound for now but as much as they seem to be struggling to hold on to gains, they are finding support in the $1,900-1,920 per oz area. If broader markets do suffer further profit-taking then we would expect that to affect gold too, but once the money is realized from profit-taking in broader markets it may then rotate into gold, so the secondary reaction to a sell-off in broader markets may be bullish for gold.

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