MORNING VIEW: Trade tensions weigh on sentiment but LME base metals prices consolidate after Wednesday’s losses

Market focus is on escalating trade tensions this morning, Thursday May 30, with participants concerned about what the United States might do if China cuts exports of rare earth minerals to the former.

This has led to further risk-off which is hitting Asian equities this morning, although base metals are, for now, in positive territory while they consolidate the previous day’s losses.

  • Market participants do not like idea that China may cut exports of rare earth minerals to the US
  • Equites down across most of Asia, following weakness in US and Europe on Wednesday
  • Metals prices consolidate Wednesday’s weakness

Base metals
Three-month base metals prices on the London Metal Exchange were up across the board by an average of 0.3% in early morning trading on Thursday. Nickel and zinc led the way with gains of 0.5% and 0.6% respectively, while the rest were ranged between being little changed or up by 0.2%. The three-month copper price was up by 0.1% at $5,899 per tonne, the recent low being $5,873.50 per tonne.

Volume has been average with 4,197 lots traded on LME Select as of 5.56am London time.

The rallies that started last Thursday, stalled on Tuesday and prices have since either given back most of their gains, as in the case of copper, nickel and zinc, with aluminium and lead consolidating, while tin has plunged to levels not seen since early December 2018.

In China, base metals prices on the Shanghai Futures Exchange were for the most part weaker on Thursday, the exceptions were July lead that was little changed and July zinc that was up by 1.2%. The rest were down between 0.3% for July nickel and 1.2% for September tin. July copper was down by 0.8% at 46,610 yuan ($6,741) per tonne.

Spot copper prices in Changjiang were down by 0.6% at 46,540-46,720 yuan per tonne and the LME/Shanghai copper arbitrage ratio was at 7.91, after 7.89 at a similar time on Wednesday.

Precious metals

Gold prices are drifting lower having once again run into resistance above the mid-$1,280’s per oz. Silver is following gold, while platinum prices are extending lower and palladium appears to be consolidating, having found support in recent days.

On the SHFE, the December gold contract is down by 0.2% compared with Wednesday’s close, while December silver is up by 0.1%.

Wider markets
In wider markets, the spot Brent crude oil price is consolidating and was recently quoted at $69.78 per barrel, up by 0.14% from Wednesday’s close at $69.68 per barrel.

The yield on benchmark US 10-year Treasuries has steadied and was recently quoted at 2.2699% compared with 2.2397% at a similar time on Wednesday. The yields on the US two-year and five-year treasuries remain inverted.

The German 10-year bund yield fell further into negative territory and was recently quoted at -0.1773%, compared with -0.1700% at a similar time on May 29.

Asian equity markets were mainly weaker this morning: Nikkei (-0.46%), Hang Seng (-0.49%), CSI 300 (-1%), the Kospi (+0.73%) and the ASX 200 (-0.79%).

This follows weakness in western markets on Wednesday. In the United States, the Dow Jones Industrial Average closed down by 0.87% at 25,126.41, while in Europe, the Euro Stoxx 50 was down by 1.52% at 3,297.81.

Currencies
The dollar index is climbing again, it was recently quoted at 99.16, following May 24’s low at 97.54 – the twin peaks at 98.35 from late-April and 98.38 from May 23 are now targets. The combination of weaker treasury yields and a strong dollar imply haven buying is heading to the US.

The euro (1.1132) is weaker, as are the pound sterling (1.2634) and the Japanese yen (109.69), while the Australian dollar (0.6928) is flat.

The yuan has flattened out in low ground and was recently quoted at 6.9063, compared with around 6.7100 in mid-April before the escalation in the US-China trade dispute. The previous lows, seen in October last year, were at 6.9762.

Key data
Economic releases on Thursday include data Spanish consumer price index (CPI), with US data including gross domestic product (GDP), GDP price index, wholesale inventories, goods trade balance, initial jobless claims, pending home sales natural gas storage and cruel oil inventories.

In addition, Federal Open Market Committee (FOMC) member Richard Clarida is speaking.

Today’s key themes and views
Numerous cross currents are affecting the metals markets, with the noise and frustration surrounding the trade war dominating and weighing on business sentiment. The funds have added downside pressure as they ride the short side, but backwardations in zinc, suggest there is a danger of being caught short.

Given fundamentals are still tight for most of the metals, when the trade winds do change direction, then a combination of short-covering, restocking and relief-buying are likely to be bullish forces. Until a trade deal starts to look imminent again, the metals are expected to find levels to build bases.

Gold prices tried to push higher on Wednesday but lacked follow-through buying, given all the uncertainty over trade, the political situation in Europe and over Iran, it surprising that gold is not in greater demand. This means either it has some catching up to do, or investors while taking some risk off the table, are not overly worried about the state of affairs – we think the latter may be the case.

base metals prices
precious metals prices

economic data

William Adams

william.adams@fastmarkets.com

Published

William Adams

May 30, 2019

08:30 GMT

London