METALS MORNING VIEW 21/03: Metals prices mixed while market absorbs latest FOMC stance

Three-month base metals prices on the London Metal Exchange were mixed this morning, Thursday March 21, while the market digested the messages from last night’s US Federal Open Market Committee (FOMC) meeting.

The FOMC proved to be even more dovish than was previously expected, which is a double edge sword as on the one hand it makes for more favorable conditions for businesses, but on the other they are only being so because they are worried about the global economic slowdown affecting the United States more.

Three-month copper and lead prices climbed by 0.3% and 0.4% respectively, with copper recently quoted at $6,510 per tonne, compared with $6,493 per tonne at the close on Wednesday, while aluminium and tin were little changed and nickel and zinc were both down by 0.5%.

Volume was average, with 5,163 lots traded on LME Select as at 5.33am London time, compared with 6,563 lots at the slightly later time of 07.05am on Wednesday.

Spot precious metals prices have reacted positively to the new FOMC stance, they are up by an average of 0.3% from Wednesday’s close, with gold at $1,317.60 per oz. This compares with a spot gold price of $1,302.59 per oz at a similar time on Wednesday morning.

In China, base metals prices on the Shanghai Futures Exchange were firmer by an average 0.4%, with gains ranged between 0.2% for May copper and May nickel and 0.8% for May zinc. May copper was recently quoted at 49,410 yuan ($7,371) per tonne, compared with 49,290 yuan per tonne at the close on Wednesday.

The spot copper price in Changjiang was up by 0.2% at 50,030-50,370 yuan per tonne this morning from 49,905-50,245 yuan per tonne at a similar time on Wednesday, while the London/Shanghai copper arbitrage ratio was weaker at 7.58, compared with 7.62 on Wednesday.

In other metals in China, the May iron ore contract on the Dalian Commodity Exchange was weaker, down by 0.3% at 611.50 yuan per tonne from 613.50 yuan per tonne at the close on Wednesday. On the SHFE, the May steel rebar contract was up by 0.9% at 3,817 yuan per tonne compared with 3,782 yuan per tonne at Wednesday’s close.

In wider markets, the spot Brent crude oil price was firmer by 0.32% at $68.60 per barrel from $68.38 per barrel at the close on Wednesday.

The yield on US 10-year treasuries was weaker following the FOMC decisions – it was recently quoted at 2.5271% from 2.6041% at a similar time on Wednesday. The yields on the US 2-year and 5-year treasuries remain inverted – they were recently quoted at 2.4024% and 2.3243% respectively. The German 10-year bund yield was weaker too at 0.0822% after 0.1000% at a similar time on Wednesday morning.

Asian equity markets were little changed to slightly stronger on Thursday while the dovish FOMC stance takes pressure off of other markets: the CSI 300 (+0.29), the Hang Seng (0.02%), the Kospi (+0.36%) and the ASX 200 (+0.03%).

This follows a weak performance in western markets on Wednesday: in the US, the Dow Jones Industrial Average closed down by 0.55% at 25,745.67 and in Europe, the Euro Stoxx 50 was down by 1.07% at 3,372.38.

Needless to say, the more dovish-than-expected stance from the FOMC weakened the dollar with the dollar index recently quoted at 95.90, compared with 96.49 at a similar time on Wednesday.

The other major currencies we follow are mainly stronger: the euro (1.1349), the Australian dollar (0.7146) and the yen (110.47), but concerns over the United Kingdom’s exit from the European Union in the Brexit process have held the pound sterling back, it was recently quoted at 1.3226.

The yuan, having been rangebound of late, has strengthened to 6.6793, compared with 6.7020 at a similar time on Wednesday. The other emerging market currencies we follow are firmer as a dovish Federal Reserve will take pressure off of their loan repayments.

On today’s economic agenda there is a European Central Bank economic bulletin and an EU economic summit. From the UK, there is data on retail sales, public sector borrowing and the Bank of England’s decision on interest rates and monetary policy. US releases include initial jobless claims, leading indicators, and natural gas storage. The main focus is likely to be on how the markets further interpret the FOMC decisions.

The metals are for the most part consolidating in, or near, high ground, and look well placed to push higher. If they do then it suggests they are looking beyond the current poor economic conditions and are anticipating a recovery should a US-China trade deal emerge. Needless to say the base metals would be vulnerable if a recovery is not forthcoming.

Lead, tin and nickel prices are further away from recent high ground, but tin and nickel still seem to be entrenched in robust uptrends, although lead looks less inclined to follow the others higher.

The heat had come out of the August-to mid-February gold rally, but the dovish FOMC stance is fueling the rebound. With much uncertainty over Brexit, US trade and the sustainability of bullish equity markets, gold has reason to hold up, but if there are favorable outcomes to some of these issues then gold prices could struggle to hold up. Silver is following gold’s lead, palladium prices remain entrenched in their robust upward trend and platinum prices are still attempting to climb.

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William Adams

william.adams@fastmarkets.com

Published

William Adams

March 21, 2019

07:53 GMT

London