METALS MORNING VIEW 21/02: Metals' price rallies face headwinds from economic data

A correction is underway in the three-month base metals prices traded on the London Metal Exchange with prices off by an average of 0.5% on the morning of Thursday February 21, compared with Wednesday’s closing levels.

This morning’s price pullbacks follow a day of strength on Wednesday when the complex closed up with gains averaging 1.2%, which saw copper pushed up through the top of resistance on the charts at $6,394 per tonne to set a high of $6,426.50 per tonne. It is therefore unsurprising that prices have pulled back to consolidate, especially given the release of some poor economic data.

The three-month copper price was recently quoted at $6,382 per tonne, down by 0.7% from Wednesday’s close at $6,425 per tonne.

Volume across the LME base metals complex has been above average with 8,808 lots traded as at 6.41am London time on Thursday, compared with 8,647 lots traded at a similar time on Wednesday.

Spot bullion prices were weaker this morning with gold down by 0.2% at $1,337.99 per oz, compared with a previous close of $1,340.40 per oz, while silver was down by 0.5% at $15.98 per oz, from $16.06 per oz.

There was similar weakness in the platinum group metals (PGMs); the spot platinum price was down by 0.4% at $822.90 per oz, compared with $826 per oz at Wednesday’s close, while the spot palladium price was unchanged from Wednesday’s close at $1,488 per oz.

In China, base metals prices on the Shanghai Futures Exchange were mixed; April lead and April zinc were down by 0.3% and 0.4% respectively, May nickel continued to push higher with a 1% gain, April aluminium was up by 0.3%, while May tin and April copper were both up by 0.1%, with the latter at 49,660 yuan ($7,405) per tonne, compared with Wednesday’s close of 49,590 yuan per tonne.

The spot copper price in Changjiang was up by 0.8% at 49,280-49,560 yuan per tonne, compared with 48,895-49,175 yuan per tonne on Wednesday, while the London/Shanghai copper arbitrage ratio was at 7.78 from 7.83 previously.

In other metals in China, the May iron ore contract on the Dalian Commodity Exchange continues to correct lower after the rally on the back of Vale SA’s tailings dam disaster – it was recently quoted at 615 yuan per tonne, compared with 621.50 yuan per tonne on Wednesday. On the SHFE, the May steel rebar contract was up by 1.3% at 3,667 yuan per tonne, compared with 3,619 yuan per tonne at Wednesday’s close.

In wider markets, the spot Brent crude oil price was unchanged from Wednesday’s close at $67.16 per barrel – prices still look bullish having triggered a very clear inverse head-and-shoulder pattern on the chart on February 13.

The yield on US 10-year treasuries was recently quoted at 2.6600%, compared with 2.6406% at a similar time on Wednesday. The yields on the US 2-year and 5-year treasuries remain inverted and were recently quoted at 2.5151% and 2.4880% respectively. The German 10-year bund yield was firmer at 0.1050%, compared with 0.1000%.

Asian equity markets were for the most part stronger on Thursday: Nikkei (+0.15%), Hang Seng (+0.29%), the ASX 200 (+0.7%), but the CSI 300 was down by 0.27% and the Kospi was off by 0.05%.

This follows a stronger performance in western markets on Wednesday; in the United States, the Dow Jones Industrial Average closed up 0.24% at 25,954.44, and in Europe, the Euro Stoxx 50 closed up by 0.62% at 3,259.49.

The dollar index is consolidating after its pullback from high ground when it stalled ahead of resistance at 97.70, it peaked at 97.37 on February 15 and was recently quoted at 96.57. The consolidation in the dollar has led to consolidation in most other major currencies we follow: the euro (1.1337), the yen (110.77) and sterling (1.3037), although the Australian dollar is slightly weaker at 0.7114.

The yuan had been trading sideways, but in recent days it has shown renewed strength and was recently quoted at 6.7124, compared with 6.7679 at the end of last week. Most of the other emerging market currencies we follow are either firmer or are consolidating.

The economic agenda for Thursday is extremely busy with flash purchasing managers’ index (PMI) data out across Japan, Europe and the US, which will provide fresh insight into how these economic regions are faring. Japan’s manufacturing PMI showed weakness, it dropped to 48.5 from 50.3 and other data already also looked weak with German and French consumer price indices (CPI) falling by 0.8% and 0.4% respectively.

Other data of note out later on Thursday includes US durable goods orders, Philadelphia Federal Reserve manufacturing index, US initial jobless claims, the Conference Board (CB) leading index, US crude oil inventories and US existing home sales.

With Thursday seeing the release of a lot of important economic data, the recent stronger tone in the base metals may well face more headwinds, especially as the minutes from the US Federal Open Market Committee that were released Wednesday evening noted the downside risks to global growth had increased. How the metals prices react to the data today will provide some insight as to how strong the recent bullish sentiment is. Copper’s push through resistance on Wednesday bodes well, but without any clarity of the US/China trade talks, it may be too early to get too bullish, especially if economic data continues to be on the soft side.

The stronger tone in the precious metals has paused as it has in the base metals, but with copper, gold and oil prices all showing strength of late, it does appear that there is some swing back into commodities.

base metals prices, rebar prices, iron ore prices
precious metals prices

economic data
economic data

William Adams


William Adams

February 21, 2019

09:05 GMT