MORNING VIEW: Base metals remain in choppy waters with prices low enough to find support, but lack inspiration to climb

While US equities remain upbeat on expectations for looser monetary policy, the base metals continue to reflect the soft economic conditions brought about by the lack of a United States-China trade deal.

The strong rebound in gold after the recent correction suggests some investors remain nervous about what lies round the corner.

  • US stocks close at record levels with the S&P 500 closing in on the 3,000 milestone…
  • …but Asia equities are mixed with China’s CSI 300 index down by 0.55%
  • Trading expected to be quiet with the US celebrating Independence Day

Base metals

The London Metal Exchange three-month base metals prices were mixed this morning, Thursday July 4. Nickel led on the downside with a 0.5% fall, while copper was down by 0.2% at $5,922 per tonne and the rest were between being little changed for tin and up by 0.3% for lead.

In China, base metals prices on the Shanghai Futures Exchange were also mixed; the August lead and zinc contracts were both down by 0.2%, while the rest were stronger, led by September tin that is up by 2%, while August copper is up 0.2% at 46,440 yuan ($6,756) per tonne.

Spot copper prices in Changjiang were up by 0.3% at 46,390-46,520 yuan per tonne and the LME/Shanghai copper arbitrage ratio was at 7.84.

Precious metals
Spot gold prices are heading lower again having challenged the June 25 high at $1,438.80 per oz on Wednesday with a rally to $1,437.55 per oz - it was recently quoted at $1,414.45 per oz.

Silver prices are consolidating and were recently quoted at $15.25 per oz, while platinum and palladium prices are also consolidating just below recent highs.

The December gold contract on the SHFE was up by 0.2%, while the December silver contract was up by 0.1%.

Wider markets
The spot Brent crude oil price is treading water at $63.10 per barrel, this after prices started to weaken at the end of last week in line with weaker economic data. Oil prices may weaken further if the US allows China to import oil from Iran.

The yield on benchmark US 10-year treasuries is below the 2% mark again and was recently quoted at 1.9489%. The German 10-year bund yield still trades in negative territory and was last seen at -0.3900% - expectations that Christine Lagarde, considered a monetary dove, may become the next president of the European Central Bank, rather than Jens Weidmann, who is considered more hawkish, has also weighed on yields.

Equities in Asia have been mixed on Thursday: ASX 200 (+0.49%), Nikkei (+0.3%), Kospi (+0.61%), the CSI 300 (-0.55%) and the Hang Seng (-0.27%).

Currencies
The dollar index is holding on to recent gains and was recently quoted at 96.75, this after a low last week of 95.84. The rebound has weighed on the euro (1.1282) and sterling (1.2572), while the yen (107.80) is firmer, as is the Australian dollar (0.7032).

The yuan is consolidating mid-range, it was recently quoted at 6.8753.

Key data
With the US closed today the main data point will be the EU retail sales data. The market is now likely to take its next direction from Friday’s US employment report.

Today’s key themes and views
Most of the base metals prices are meandering sideways as the market range trades. The weakness highlights the slowing global economy that is waiting for a boost from a trade deal, but as that might be some way off, there seems little urgency to react to the generally tightening fundamentals. The exception has been tin that collapsed on Tuesday with a drop to $17,585 per tonne, which was the lowest it had been since July 2016, but prices have since rebounded to $18,215 per tonne. The extent of the sell-off was thought to be a liquidity issue, as the fundamentals are considered to be tight.

Gold - we said earlier on in the week, “Key now will be how the market handles this pullback. If it is short-lived then that will suggest investors are still nervous about the big economic and financial market pictures”. The fact prices rebounded aggressively on Tuesday and Wednesday, suggests investors are indeed nervous and that may well mean gold’s rally has further to run.

base metals
precious metals

macroeconomic data

William Adams

william.adams@fastmarkets.com

Published

William Adams

July 04, 2019

09:23 GMT

London