MORNING VIEW: LME base metals prices mixed while markets await developments

Markets are in semi-limbo while they wait for developments on US-China trade and Chinese stimulus; the release of Chinese purchasing managers’ index (PMI) data on Friday May 31, if poor, may well prompt more stimulus.

  • Asian equities firmer after poor Chinese industrial profits boost expectations for stimulus
  • Markets likely to focus on Friday’s Chinese PMI data

Base metals
Three-month base metals prices on the London Metal Exchange were for the most part firmer on Tuesday morning, the exceptions were nickel and lead that were down by 0.2% and 0.7% respectively. The other base metals were up by an average of 0.6%, led by a 1.2% gain in zinc. Copper was recently quoted at $5,997 per tonne, up by 0.6% compared with Friday’s close of $5,962.50 per tonne.

The rallies that started last Thursday were generally extended the following day and most of the metals are up again this morning. But, in this uncertain trade climate it is difficult to see why consumers would be in any hurry to chase prices higher. That said, there is potential for short-covering by those funds that have been trading the short side.

In China, base metals prices on the Shanghai Futures Exchange were mixed on Tuesday, with July zinc rising by 2%, while July lead fell by 1.2%. September tin was up by 0.6% and July copper was up by 0.2% at 47,260 yuan ($6,842) per tonne, while the rest were off between 0.1% for July nickel and 0.4% for July aluminium.

Precious metals

Gold prices are consolidating recent gains but seem to be encountering resistance in the mid-$1,280’s per oz. Silver and platinum are following gold’s lead, while palladium appears to have found support above $1,300 per oz. This morning gold, silver and palladium are little changed, with gold recently quoted at $1,283.48 per oz, with platinum prices up by 1.3% at $812.80 per oz.

On the SHFE, the December gold contract is little changed compared with Monday’s close, while December silver is off by 0.3%.

Wider markets
In wider markets, the spot Brent crude oil price continues to rebound following the tumble seen in the first half of last week when prices dropped to $67 per barrel; the spot price was recently quoted at $70.21 per oz, up by 1.4% compared with Friday’s close of $69.22 per barrel.

The yield on benchmark US 10-year treasuries has fallen further and was recently quoted at 2.3090% compared with 2.3232% at a similar time on Friday. The yields on the US two-year and five-year treasuries remain inverted.

The German 10-year bund yield remains in negative territory and was recently quoted at -0.1400%, compared with -0.1100% at a similar time on Friday.

Asian equity markets were upbeat this morning: Nikkei (+0.47%), Hang Seng (+0.67%), CSI 300 (+1.22%), the Kospi (+0.41%) and the ASX 200 (+0.54%).

This follows a stronger market in Europe on Monday, where the Euro Stoxx 50 was up by 0.4% at 3,364.04. US markets were closed for Memorial Day.

Currencies
The dollar index has become quite choppy, it was recently quoted at 97.78, following Friday’s low at 97.54 and a high at 98.38 on May 23. For now, the index seems to be consolidating its latest show of strength.

The other major currencies show the euro (1.1183), pound sterling (1.2681) and the Australian dollar (0.6925) consolidating off low, while the Japanese yen (109.47) is consolidating off recent highs, which highlights its haven qualities.

The yuan has flattened out either side of 6.9000 and was recently quoted at 6.9047, compared with around 6.7100 in mid-April before the escalation in the US-China trade dispute.

Key data
Data out already on Tuesday showed the Bank of Japan’s core consumer price index (CPI) climb 0.7% year on year in April, this after a 0.5% gain in March. In Germany, GfK consumer climate eased to 10.1 from 10.2 previously and import prices climbed 0.3% in May, compared with being flat in March. Data out later includes EU M3 money supply and private loans, with US data including data on house prices and consumer confidence.

Today’s key themes and views
With government bonds, the yen and the dollar strong, there does seem to be an air of risk-off – even Bitcoin continues its advance with the price approaching the $9,000 level again. With considerable uncertainty over trade and with that weighing on economic activity, there does not seem too much to be bullish about save for the likely relief rally that will follow a trade deal, when one is finally reached. But, that could still be a long way off. As such, we expect rallies to struggle and for the sideways-down trend to continue until hopes for a trade deal rise again.

The gold price has had another blip higher on the back of the latest risk-off move in markets and with treasury yields low and negative in the case of some European yields, the opportunity cost of holding gold is low. That said, the medium-term trend in gold remains to the downside.

base metals prices
precious metals prices

economic data

William Adams

william.adams@fastmarkets.com

Published

William Adams

May 28, 2019

08:40 GMT

London