METALS MORNING VIEW 31/01: Metals’ price rallies gain momentum

A dovish US Federal Reserve stance, a weaker dollar and a firmer Chinese yuan, which may indicate confidence in US-China trade talks, are all helping to underpin the three-month base metals prices on the London Metal Exchange this morning, Thursday January 31.

Lead and zinc prices led on the upside with gains of 0.6% and 0.5% respectively, followed by rises of 0.4% in tin, 0.3% in aluminium, 0.2% in copper to $6,147 per tonne and 0.1% in nickel.

Volume across the LME base metals complex was above average with 7,212 lots traded as at 6.52am London time.

In the precious metals this morning, gold and silver prices were either side of unchanged with gold at $1,320.80 per oz and silver at $16.03 per oz, while the more industrial platinum group metals were up by 0.3%.

In China, base metals prices on the Shanghai Futures Exchange were for the most part stronger, the exception once again being the March lead contract that was off by 0.9%. The March zinc contract led the gains with a 1.6% rise, with the May nickel contract up by 1% and the March copper contract up by 0.6% at 48,050 yuan ($7,151) per tonne, while aluminium and tin were little changed.

Spot copper prices in Changjiang were up by 0.6% at 47,610-47,725 yuan per tonne and the LME/Shanghai copper arbitrage ratio was weaker at 7.82, having been 7.86 on Wednesday morning.

In other metals in China, the May iron ore contract on the Dalian Commodity Exchange was up by 1.8% at 588.50 yuan per tonne with the price still responding to Vale SA’s announced production cuts following its dam collapse. On the SHFE, the May steel rebar contract was down by 0.5%.

In wider markets, the spot Brent crude oil price was firmer by 0.45% at $62.04 per barrel – prices are challenging resistance that lies between $62 and $63.75 per barrel.

The yield on US 10-year treasuries has drifted again, it was recently quoted at 2.6688%. The yields on the US 2-year and 5-year treasuries remain inverted, they were recently quoted at 2.4929% and 2.4749% respectively. The German 10-year bund yield was recently quoted at 0.1600%.

Asian equity markets were mixed on Thursday: Nikkei (+1.06%), Hang Seng (+1.04%), the CSI 300 (+1.05%), the ASX 200 (-0.37%) and the Kospi (-0.06%).

This morning’s mixed performance in Asia follows a firmer performance in western markets on Wednesday; in the United States, the Dow Jones Industrial Average closed up by 1.77% at 25,014.86, and in Europe, the Euro Stoxx 50 closed up 0.26% at 3,161.74.

The dollar index is weaker on the back of the dovish Federal Reserve comments – it was recently quoted at 95.18, and its weakness is bolstering the other major currencies we follow: the euro (1.1511), the yen (108.70), the Australian dollar (0.7274) and sterling (1.3148).

The yuan is also strengthening and was recently quoted at 6.7016, the highest it has been since July last year. Most of the other emerging market currencies we follow are also strengthening.

The economic agenda is extremely busy on Thursday with data already out showing a continued contraction in China’s manufacturing sector with the manufacturing purchasing managers’ index (PMI) at 49.5 for January, this after 49.4 in December 2018, but the non-manufacturing PMI climbed to 54.7 from 53.8 in the same comparison. UK Gfk consumer confidence came in unchanged at -14, while UK house price index climbed 0.3% and German retail sales fell by 4.3%.

Data out later includes French and Spanish consumer price index (CPI), Spanish, Italian and EU gross domestic product (GDP) and German, Italian and EU unemployment data. US data includes Challenger job cuts, employment costs, initial jobless claims, the Chicago PMI, new home sales, natural gas storage and treasury international capital long-term purchases. In addition, Germany’s Bundesbank president Jens Weidmann is speaking

Rallies are generally underway in the base metals, but confidence is low and the market remains nervous about the US-China trade talks and the state of global growth. As such, there is a wall of worry to climb but considering how oversold the metals had become in the second half of last year, rising prices on their own may be enough to prompt some restocking, or at least see consumers switch from destocking to hand-to-mouth buying, both of which would boost apparent demand.

We should still be braced for some volatile trading, especially as liquidity is likely to start to shrink ahead of the Lunar New Year holiday (February 4-10). Any real progress on trade could give the market a significant boost.

In the precious metals, gold is are leading on the upside and the weaker dollar and treasury yields will be helping, so for now sentiment seems more bullish.

London Metal Exchange, base metals prices, precious metals prices

Shanghai Futures Exchange, base metals prices, precious metals prices

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William Adams

william.adams@fastmarkets.com

Published

William Adams

January 31, 2019

09:25 GMT

London