MORNING VIEW: Base metals prices suffer while stress rises across markets

Sentiment in financial markets continues to weaken following last week’s collapse of US-China trade talks and US president Donald Trump’s latest threat of tariffs on Chinese goods.

Equities in Asia tumbled this morning, Monday August 5, and the yuan has dropped below seven to the dollar - the first time since 2008.

  • Weakness in Asian currencies suggests wide-scale market unease.
  • Gold price reaches a fresh high of $1,459.78 per oz.

Base metals
On the London Metal Exchange, three-month copper and tin prices led on down side with losses of 0.7% and 1.4% respectively, which took prices to fresh multi-year lows. Copper was recently quoted at $5,680.60 per tonne, having earlier been down to $5,640 per tonne - the lowest it has been since June 2017. Lead and aluminium prices were down by 0.2% and 0.4% respectively, but remain within recent ranges, while zinc is little changed but remains in low ground and nickel is bucking the trend with a 1.9% rise to $14,755 per tonne.

Volume across the complex has been extremely high with 18,650 lots traded as at 7.23am London time, this compares with an average volume at a similar time last week of 5,650 lots.

In China, base metals prices on the Shanghai Futures Exchange were mixed. September copper was off by 1.1% at 45,910 yuan ($6,614) per tonne, September lead and tin were down by 0.4% and 0.8% respectively, September aluminium and zinc prices were up by 0.4% and 0.5% respectively, while October nickel was up by 3.7%.

Spot copper prices in Changjiang were down by 1% at 45,810-46,000 yuan per tonne and the LME/Shanghai copper arbitrage ratio was stronger at 8.08 compared with 7.95 on Friday - the rise in the ratio suggesting LME copper prices have been harder hit than those in Shanghai.

Precious metals
While other markets are showing signs of stress, the spot gold prices has climbed to a fresh-multi-year high of $1,459.78 per oz while haven demand increases. This was the highest the spot gold price had been since May 2013. Silver prices are firmer at $16.54 per oz, but remain below the high of $16.65 per oz from July 25, and the platinum group metals are consolidating after recent weakness.

On the SHFE, the December gold and silver contracts were both up by 4%.

Wider markets
The spot Brent crude oil price remains on a back footing and was recently quoted at $61.08 per barrel, down by 0.29% from Friday’s close.

The yield on benchmark US 10-year treasuries has also collapsed while haven demand increases, it was recently quoted at 1.7716% compared with 1.8866% at a similar time on Friday. The German 10-year bund yield has continued to weaken - it was recently at -0.5270% compared with -0.4840% on Friday morning.

In equities, Asian indices were weaker: Nikkei (-1.74%), Hang Seng (-2.93%), Kospi (-2.56%), the CSI 300 (-1.57%) and the ASX200 (-1.9%).

This follows a weak performance in western markets on Friday; In the United States the Dow Jones Industrial Average closed down by 0.37% at 26,485.01 and in Europe the Euro Stoxx50 closed down by 3.3% at 3,376.12.

Currencies
The dollar index reached a high of 98.94 on August 1, but it has since dropped back to 98.00. The weakness in treasury yields and equities seems to be becoming a headwind for the dollar and that has seen some diversification into the Japanese yen (106.00) and euro (1.1122).

But the Australian dollar (0.6768) and sterling (1.2110) remain weak.

Key data
The economic agenda is busy on Monday with services purchasing managers’ index (PMI) data out. China’s Caixin services PMI dropped to 51.6 from 52, later there is PMI data out in Spain, Italy, France, Germany, the European Union, United Kingdom and US. In addition, there is Sentix investor confidence data out in the EU and a US loan officer survey.

Today’s key themes and views
The base metals are quite mixed; tin is looking the weakest, copper is now looking the second weakest along with zinc, while aluminium and lead prices are correcting but still above May/June lows. Nickel is the only one showing independent strength, which is somewhat surprising given the economic data and the increase in stainless steel capacity that is believed to be causing oversupply, and therefore likely to see cutbacks.

A few weeks back we thought the lows were either in place or soon to be in place, the disappointment the market suffered last week suggests prices may remain under pressure for longer. That said, the sell-off in copper earlier this morning does seem to be attracting bargain-hunting.

Gold is doing what gold should do in such times, it is providing a haven and the fact the opportunity cost of holding gold is low, is no doubt helping.

base metals
precious metals

macroeconomic data

William Adams

william.adams@fastmarkets.com

Published

William Adams

August 05, 2019

09:45 GMT

London