Volume has been above average with 7,311 lots traded. This
morning’s earlier weakness came after a generally
stronger day on Wednesday that saw prices closed up an average
of 1.1% - so the series of up down days with an overall
downward bias continues.
Gold and silver prices are little changed this morning with
spot gold prices at $1,279.60 per oz, although the PGMs are up
an average of 0.4%, but this comes after a generally weaker day
on Wednesday that saw the complex closed down an average of
0.6%. With gold prices already having run higher in recent
weeks on the back of political and geopolitical uncertainty, we
are not surprised that there is some profit-taking to be
absorbed and the market is likely to remain volatile as we pass
through the French presidential elections.
Sentiment in China remains bearish as seen by the persistent
retreat across the metals, both base and industrial. That said,
not all base metals prices on the Shanghai Futures Exchange are
weaker this morning, zinc and lead that have been some of the
weaker metals are up 0.4% and 1.2%, respectively, which
suggests a degree of bargain hunting. The rest of the metals
are, however, continuing to show weakness with aluminium prices
falling 1.2%, tin prices are down 0.7%, nickel prices are down
0.5% and copper prices are off 0.9% at 45,200 yuan per tonne.
Spot copper prices in Changjiang are down 0.9% at 45,470-46,670
yuan per tonne and the LME/Shanghai copper arb ratio was
trading around 8.11. There were reports of some arb trading on
Wednesday, which is another early sign that some bargain
hunting may be materialising.
In other metals in China, September iron ore futures have
continued to fall, they are down 2.3% on the Dalian Commodity
Exchange, while on the SHFE, steel rebar prices are down 1.4%,
gold prices are off 0.2% and silver prices are down 0.4%. In
international markets, spot Brent crude oil prices are little
changed at $53.12 per barrel, although that is after a much
weaker day on Wednesday and the yield on the US ten-year
treasuries is weaker at 2.21%.
Equities were mixed on Wednesday with the Euro Stoxx 50 closing
up 0.3%, but the Dow closed down 0.6% at 20,404. Asia this
morning, however, is firmer with the Nikkei up 0.1%, the Hang
Seng is up 0.4%, the CSI 300 and ASX 200 are up 0.2% and the
Kospi is up 0.5%. Asian equities seem to be taking comfort from
better Japanese trade data that showed a pick-up in imports and
exports. Earlier in the month, China also reported better
exports and imports, all of which bodes well for global growth.
The dollar index is at 99.69, it seems to be consolidating
recent weakness, the low on Wednesday was 99.46. In line with
this consolidation, other currencies are treading water too
with the euro at 1.0727, the pound sterling at 1.2813, the
Australian dollar at 0.7506 and the yen at 108.92. In emerging
market (EM) currencies, the yuan is weaker at 6.8857and most of
the other EM currencies we follow are on a back footing,
especially the Mexican peso, while the South African rand is
rebounding after the recent weakness.
On the economic calendar today there is data on German PPI, US
Philly Fed manufacturing, initial jobless claims, leading
indicators and Natural gas storage. There is also data on EU
consumer confidence and two speeches from Bank of England
governor Mark Carney and one from US Treasury Secretary Steven
Mnuchin - see table below for more details.
The tone in the base metals is not bullish at present and we
put that down to the market adjusting from being too bullish
after the US election and earlier this year. The higher prices
attracted hoarded metal out of the woodwork and that is having
to be absorbed and while that is happening upward momentum has
been lost. In turn, that has prompted stale long liquidation
and some short selling. The degree to the weakness being seen
is metal dependent with zinc, lead, nickel and tin, all falling
further than copper and aluminium. We would say the bearishness
is momentum based, while the underlying fundamentals remain
bullish if anything. As such we would run with the weaker trend
for now, but expect them to turn higher before too long,
especially as better Chinese and Japanese trade data suggest
the global economy is improving.
Gold prices have already rallied as geopolitical tensions are
running higher, higher prices are not surprising prompting some
profit-taking, as at the end of the day Marine Le Pen is
unlikely to be the next French president, but given the
surprised over Brexit and the US election, there will be a lot
of uncertainty and nervousness until the final vote is known.
As such, we expect increased volatility in the weeks ahead,
especially as other geopolitical events are running in
parallel. Silver, platinum and palladium, are generally holding
up well, but weakness in other industrial metals seems to be
weighing on sentiment to some extent.