METALS MORNING VIEW 16/03: Metals rally resumes post Fed rate rise

Base metals prices are up an average of 0.6% on the London Metal Exchange this morning, Thursday March 16, with gains seen across the board varying from 0.3% for three-month tin prices and 0.9% for aluminium prices - volume has been relatively high with 10,104 lots traded as of 06:17 GMT.

This was after a 1.1% gain on Wednesday that saw most of the metals trade higher, but with tin prices the exception, they were off 0.1%.

Precious metals are also firmer this morning with average gains of 1%; bullion prices are up an average of 0.5%, while the PGMs are firmer with average gains of 1.3%. Gold prices were recently quoted at $1,226.33 per oz, having been as low as $1,195 per oz on March 10. What is interesting is that gold prices are higher despite a Fed US interest rate rise and no populist winning vote in the Dutch election. This morning’s gains are on top of gains averaging 2.3% on Wednesday.

In Shanghai, the base metals are up an average of 1.6% this morning, led by a 3% gain in zinc prices, copper prices are up 1.3% to 48,040 yuan per tonne, while tin and nickel prices are up the least with gains of 0.9%. Spot copper prices in Changjiang are also up 0.9% at 47,590-47,790, which suggests prices have moved higher as the day has progressed. The LME/Shanghai copper arb ratio is around 8.12.

In other metals in China, May iron ore prices on the Dalian Commodity Exchange are up 0.2%, prices have recovered sharply in recent days, on the Shanghai Futures Exchange, steel rebar prices are off 0.8%, silver prices are up 2.7% and gold prices are up 1.6%. In international markets, spot Brent crude oil prices are up 0.1% at $52.11 per barrel, while the yield on the US 10-year treasury is around 2.49%.

Equities took Wednesday’s Dutch election and US Fed rate rise in their stride, with the Euro Stoxx 50 closing up 0.3% and the Dow closed up 0.5%. This morning in Asia, equities are upbeat too with the Nikkei up 0.1%, the Hang Seng is up 1.5%, the CSI 300 is up 0.3%, the ASX 200 is up 0.2% and the Kospi is up 0.8%. All of which suggests confident market sentiment.

In FX, the dollar index sold off, it was recently quoted at 100.56, suggesting the rate raise was discounted, but it has reacted negatively to the somewhat dovish tone from the US Federal Open Market Committee as they suggested they were not behind the curve with regards to raising interest rates. As the dollar declined, other major currencies rallied, especially the Australian dollar that has climbed to 0.7694, it also being helped by stronger commodity prices. The euro, sterling and yen were recently quoted at 1.0728, 1.2280 and 113.31, respectively.

In emerging market currencies, the yuan is firmer at 6.8665 and most of the other currencies we follow have strengthened significantly, especially the rupee that was recently quoted at 65.375.

The economic agenda is busy with EU CPI, the Bank of England interest rate decisions and monetary policy updates, and with US data including building permits, housing starts, the Philly Fed manufacturing index, US initial jobless claims, job opening and natural gas storage.

The base metals prices are rebounding after last week’s consolidation/correction, which we see were in part due to the market’s reaction to Chinese Premier Li Keqiang’s pitching the country’s growth target at 6.5% and in anticipation of the US rate rise. With prices rebounding, another US rate rise suggesting the Fed is confident about economic recovery and with emerging markets showing confidence too, it suggests sentiment in the metal markets remains quietly bullish, which is in line with our view. We will now need to see whether those metals that are near former resistance levels have enough buying to absorb overhead selling, which would lead to the uptrends pushing higher, or whether there is still enough selling around to cap the upside.

Gold prices also appear to have had another correction within this year’s upward trend. The pattern of selling off ahead of a likely US interest rate rise, only to be followed by a rally after the rise, seems to be alive. We continue to think there are potential broader market corrections ahead, possibly led by a bond market correction, combined with geopolitical risks, which will mean investors want to diversify portfolios and that should underpin gold prices. But, after the Dutch election result, it may be that nervousness about the populist vote in Europe subsides, which could mean there is less upward pressure on gold prices for a while. As such, we would look for gold to range trade for a while either side of $1,230 per oz.

Metal Bulletin publishes live futures reports throughout the day, covering major metals exchanges news and prices.

Overnight Performance
GMT 06:17 +/- +/- % Lots
Cu 5922 34 0.6% 3566
Al 1901 17 0.9% 1556
Ni 10325 75 0.7% 1525
Zn 2842 20.5 0.7% 2918
Pb 2273.5 10.5 0.5% 518
Sn 19940 55 0.3% 21
  Average
0.6%       10,104
Gold 1226.33 5.88 0.5%  
Silver 17.444 0.124 0.7%  
Platinum 968.1 13.1 1.4%  
Palladium 770.5 9.5 1.2%  
  Average PM   1.0%  

SHFE Prices 06:20 GMT RMB Change % Change
Cu 48040 600 1.3%
AL  13945 240 1.8%
Zn 23225 680 3.0%
Pb 18260 315 1.8%
Ni 85440 770 0.9%
Sn 147010 1310 0.9%
Average change (base metals)
1.6%
Rebar 3599 -30 -0.8%
Iron ore 723.5 1.5 0.2%
Au 276.9 4.4 1.6%
Ag 4156 108 2.7%

William Adams

william.adams@fastmarkets.com

Published

William Adams

March 16, 2017

08:36 GMT

London