MORNING VIEW: LME base metals prices under pressure while trade dispute continues

The lack of any last minute breakthrough in US-China trade talks has led to risk-off this morning, Monday 13 May, with money moving into haven assets.

  • Lack of a US-China trade deal prompts risk-off
  • European equities follow Asian equities lower, US treasury yields weaken

Base metals
In line with the escalation in trade tensions between the United States and China, most of the three-month base metals prices on the London Metal Exchange were weaker with the complex down by an average of 0.5%. Copper led on the downside with a 0.9% price fall to $6,090 per tonne, after closing at $6,146 per tonne on Friday, while tin bucked the trend with a 0.1% gain.

The overall trends on the price charts remain downward and the combination of mixed global economic data and the lack of a trade deal mean business confidence is low. Given these conditions, it is not surprising that consumers feel in no hurry to restock into the price weakness.

In China, base metals prices on the Shanghai Futures Exchange were mixed on Monday, with the complex up by an average of 0.1%. The June aluminium (+0.9%) and lead (-0.9%) contracts were polarized, while June nickel was up by 0.6% and June copper was off by 0.2% at 47,670 yuan ($6,980), compared with Friday’s close of 47,760 yuan per tonne. The SHFE other base metals were little changed.

Spot copper prices in Changjiang were down by 0.6% at 47,530-47,760 yuan per tonne and the LME/Shanghai copper arbitrage ratio was recently at 7.83, compared with 7.78 at a similar time on May 9.

Precious metals
Spot precious metals prices were weaker on Monday morning. Gold and silver prices were down either side of 0.3%, with gold recently quoted at $1,283.09 per oz, compared with $1,285.75 per oz at Friday’s close. Platinum and palladium prices were down by 1.3% and 1.7% respectively.

On the SHFE, the June gold contract was up by 0.5% from Friday’s close, while the December silver contract was off by 0.1%.

Wider markets
In wider markets, the spot Brent crude oil price is firmer by 0.47% at $71.08 per barrel, compared with $70.76 per barrel at Friday’s close.

The yield on benchmark US 10-year treasuries was weaker at 2.4270%, compared with 2.4520% at a similar time on Friday. The yields on the US two-year and five-year treasuries remain inverted, they were recently quoted at 2.2201% and 2.2169% respectively.

The German 10-year bund yield remains negative, it was recently quoted at -0.0500%, unchanged from what it was at a similar time on Friday.

Asian equity markets were for the most part weaker: Nikkei (-0.72%), Hang Seng (closed), CSI 300 (-1.65%), the Kospi 50 (-1.03%) and the ASX 200 (-0.21%).

This follows a mixed performance in western markets on Friday. In the US, the Dow Jones Industrial Average closed up by 0.44% at 25,942.37, while in Europe the Euro Stoxx 50 was down by 0.1% at 3,357.70.

Currencies
The dollar index was consolidating on Monday morning, it was recently quoted at a slightly firmer 97.37, compared with 97.40 at a similar time on Friday.

The other major currencies are mixed but are generally consolidating: the euro (1.1229), the yen 109.66, sterling (1.3002) and the Australian dollar (0.6970).

The yuan continues to sell-off, it was recently quoted at 6.8665, compared with 6.7991 at a similar time on Friday. The other emerging market currencies are either consolidating or showing weakness.

Key data
Monday is a quiet day on the economic data front with Japan’s leading indicators the only data scheduled for release. The index came in at 96.3%, compared with 97.1% previously. US Federal Open market Committee member Richard Clarida is also speaking this afternoon.

Today’s key themes and views
The continuing US-China trade dispute means the markets have not been given the boost many people had expected and traders are likely to adjust their positions accordingly. The increase in US tariffs against China will no doubt hit demand and the market is likely to be nervous in case China retaliates with sanctions of its own. All of which is likely to weigh on prices.

Last week gold found some support on the back of the turmoil in the trade talks, but not much as prices are still below $1,300 per oz. For now the overall trend is to the downside and it would take a move above $1,292 per oz to start to change that.

base metals prices
precious metals prices

economic data

William Adams

william.adams@fastmarkets.com

Published

William Adams

May 13, 2019

09:45 GMT

London