MORNING VIEW: LME base metals consolidate against mixed background

Although metals markets were mixed this morning, Thursday May 16, the downward trends on the charts seem to have halted; key now will be whether buying and short-covering follows.

At least US President Donald Trump’s delaying for six months his decision on whether to impose tariffs on imported vehicles and vehicle parts from Japan and Europe has not further broadened the trade war.

  • US treasury yields fall on back of poor US economic data on Wednesday
  • Trump avoids broadening the trade war to include Japan, Europe

Base metals
Three-month base metals prices on the London Metal Exchange were mixed on Thursday, with three-month copper, aluminium and tin little changed, while nickel and zinc were down by 0.5% and 0.4% respectively and lead was up by 0.3%. Copper was recently quoted at $6,075 per tonne, compared with Wednesday’s close of $6,077.50.

On the charts, most of the metals prices have been climbing for two-to-three days and with backwardations present in zinc, nickel and tin, if prices have stopped falling, then that may well prompt short-covering.

In China, base metals prices on the Shanghai Futures Exchange were up across the board on Thursday, with prices up by an average of 0.7% – led by a 1.4% rise in the June lead contract and a 1.1% rise in the June nickel contract. June copper was up by 0.4% at 47,810 yuan ($6,952) per tonne, compared with Wednesday’s close at 47,600 yuan per tonne.

Spot copper prices in Changjiang were up by 0.6% at 47,640-47,780 yuan per tonne and the LME/Shanghai copper arbitrage ratio was slightly firmer at 7.87, compared with 7.86 at a similar time on Wednesday.

Precious metals
Spot gold prices were slightly firmer at $1,297.01 per oz on Thursday morning, but resistance seems to be present above $1,300 per oz. Silver and platinum prices were both up by 0.1%, while the palladium price was off by 0.2%.

On the SHFE, the June gold contract was up by 0.1% from Wednesday’s close, while the December silver contract was off by 0.2%.

Wider markets
In wider markets, the spot Brent crude oil price was recently quoted at $71.90 per barrel, up from $70.94 per barrel at a similar time on Wednesday.

The yield on benchmark US 10-year treasuries has fallen further and was recently quoted at 2.3565%, compared with 2.4130% at a similar time on Wednesday. The yields on the US two-year and five-year treasuries remain inverted and were recently quoted at 2.1502% and 2.1342% respectively. The weakness in the yields follows generally poor US data on Wednesday, which suggests investors are worried about the state of the US economy.

The German 10-year bund yield has moved further into negative territory, it was recently quoted at -0.1200%, compared with -0.0792% at a similar time on Wednesday.

Asian equity markets were mixed this morning: Nikkei (-0.59%), Hang Seng (+0.27%), CSI 300 (+0.45%), the Kospi (-1.2%) and the ASX 200 (+0.69%).

This follows a stronger performance in western markets on Wednesday. In the United States, the Dow Jones Industrial Average closed up by 0.45% at 25,648.02, while in Europe the Euro Stoxx 50 was up by 0.64% at 3,385.78.

Currencies
The dollar index is edging higher and was recently quoted at 97.53, this after a low on Monday of 97.03.

Sterling (1.2830) and the Australian dollar (0.6917) are weaker, while the Japanese yen (109.46) and the euro (1.1211) are consolidating.

The yuan remains weak at 6.8832, compared with around 6.7100 in mid-April before the escalation in the US-China trade dispute.

Key data
Data out already on Thursday showed Japan’s producer price index come in at 1.2%, down slightly from 1.3% previously, and China’s foreign direct investment grew by 6.4%, compared with a previous 6.5% rise.

Other key data out on Thursday includes US building permits, housing starts, the Philly Fed manufacturing index and initial jobless claims.

In addition, US Federal Open Market Committee member Lael Brainard and UK Monetary Policy Committee member Jonathan Haskel are speaking.

Today’s key themes and views
The price slides may have halted but given the poor economic data out of China and the US and with the US-China trade dispute lingering on there is little to be bullish about. That said, with prices already down and with the funds short, prices may get some support from short-covering. If and when a trade deal is made, then we would expect business confidence to recover and that could then lead to a restocking rally.

Gold found some support last week on the back of the turmoil in trade talks and now with bond markets rising on the back of concern about the health of the US economy, gold may be supported for longer, especially as treasury yields are getting low again.

base metals prices
precious metals prices

economic data

William Adams

william.adams@fastmarkets.com

Published

William Adams

May 16, 2019

10:10 GMT

London