MORNING VIEW: LME base metals prices consolidate amid mixed trade messages

While US officials have given the impression that they will attempt to defuse the ongoing trade dispute with China at the upcoming Group of 20 (G20) summit on Friday June 28, their Chinese counterparts were less upbeat.

Despite the optimistic view shared by US treasury secretary Steven Mnuchin that a trade deal with China is “90% completed”, market sources in the Asian nation say that Chinese officials are projecting a far more critical view of the situation.

Against such a mixed backdrop, most of the three-month base metals on the London Metal Exchange have struggled to hold on to recent gains. The exception being nickel which continues to surge.

But with so little time before the G20 summit, risk aversion is likely to remain heightened over the next 48 hours and this has signaled to global investors that it is best to remain on the sidelines and perhaps diversify into haven assets again.

Base metals
The LME three-month base metals prices were only slightly stronger on Thursday morning, up by an average of 0.1% as at 6.57am London time. Tin was the lone metal in negative territory with a drop of 0.2% to $18,805 per tonne. Nickel and aluminium led the rest higher with gains of 0.4%, while copper, zinc and lead could only manage marginal increases of 0.1%.

In China, base metals prices on the Shanghai Futures Exchange were less upbeat, with the complex down by an average of 0.1%. Supply tightness in the iron ore market has fueled strong buying in the most-traded August nickel contract, pushing it up by 1.5%. The others declined with August zinc (-0.6%) dropping the most, followed by August copper (-0.5%), August lead (-0.5%) and September tin (-0.4%), while August aluminium was unchanged from the previous day’s close.

Spot copper prices in Changjiang were down 0.4% at 47,000-47,150 yuan ($6,833-6,855) per tonne and the LME/Shanghai copper arbitrage ratio was last trading at 7.93 - slightly down from 7.95 at a similar time on Wednesday.

Precious metals
As global risk sentiment showed further signs of stabilizing and the dollar index recovered from recent weakness, the precious metals complex has considerably lost its bullish momentum. On average, the complex was unchanged at the time of writing. That said, haven demand has eased considerably, with spot gold and silver consolidating recent gains and most recently trading at $1,406 per oz and $15.22 per oz respectively.

Meanwhile, platinum continues to hover above the psychological price level of $800 per oz, but the price was unchanged at $812.90 per oz this morning. Still, this is higher than the $807 per oz level seen at similar time on Wednesday. Sister-metal palladium is by far the strongest metal in the camp, up by 0.3% and recently trading at $1,524.20 per oz.

Gold and silver prices on the SHFE have succumbed to follow-through selling pressure with the December contracts for both metals down by an average of 0.8%.

Wider markets
With little to no sign that geopolitical tensions in the Middle East have eased, the spot Brent crude oil price remains well supported and traded as high as $66.38 per barrel in the early session on Thursday, higher than Wednesday’s peak of $65.88 per barrel.

The yield on benchmark US 10-year treasuries continues to hover above the 2% mark, but the German 10-year bund yield still trades in record negative territory and was last seen at-0.3000%, a contrast to last week’s -0.2500%.

In equities, Asian markets were stronger across the board on Thursday: Topix up (+1.23%) Hang Seng (+1.22%), Nikkei (+1.19%), CSI300 (+0.87%) and ASX (+0.39%).

This follows a weaker performance by major US indices on Wednesday, with the Dow Jones Industrial Average closing down by 0.04% the S&P500 down by 0.12%, while Nasdaq ended the day with a decent gain of 0.32% to close at 7,909.

Currencies

The dollar index edged higher on Thursday and was recently trading at 96.34, up from 96.25 at a similar time on Wednesday. While demand for haven assets recedes, so too has the recent strength in the Japanese yen - it was recently down at 108.11.

The other major currencies we follow were weaker too, with the euro down by 0.15% to 1.1356 while sterling was recently down by 0.14% to 1.2677. The Australian dollar was firmer however, edging up by 0.08% to 0.6990.

The yuan has strengthened to 6.8796, up from 6.8838 at a similar time on Wednesday.

Key data
Data out in the early Asian trading session saw Japanese retail sales coming in as expected at 1.2% and beating the previous reading which was 0.4%.

In US data on Thursday, the third and final revision of annualized gross domestic product (GDP) for the first quarter is due. Forecasts are for GDP to be unchanged from the previous release at 3.1%.

Today’s key themes and views

Headlines on the US-China trade dispute have shown mixed messages of late. But there is general consensus among market participants that the meeting between Xi and Trump at the G20 summit is unlikely to result in an end to trade war.

Still, optimism is high that the meeting could go some way to defusing current tensions between the two sides. As a result, global risk sentiment has stabilized somewhat and this has provided some element of buying among risk assets.

While confidence starts to improve on the macroeconomic front, more profit-taking in haven assets remains in store - though any pullback could well be the consolidation of recent gains.

Another bout of buying in haven assets could emerge if geopolitical tensions in the Middle East escalate further or if the G20 summit fails to produce any clear picture on the simmering trade war between the US and China.

base metals
precious metals

macroeconomic data

Andy Farida

andy.farida@fastmarkets.com

Published

Andy Farida

June 27, 2019

09:50 GMT

London