MORNING VIEW: Metals prices consolidate but markets remain nervous

Markets remain nervous on Thursday August 29, especially since the next wave of US tariff increases on Chinese goods are set to come into effect on September 1 and the US yield curve is showing the deepest inversion since 2007, with the 30-year yield falling to a historic low on Wednesday.

Apart from nickel and to a lesser extent lead, most base metals prices remain in low ground, seemingly because in this economic climate buyers feel in little need to restock. With fears of the fallout from the United States-China trade war increasing, so has demand for havens. 

  • China’s yuan weakens to 7.1700. 
  • US second-quarter GDP expected to be revised to 2% from 2.1%.

Base metals
Three-month base metals prices on the London Metal Exchange were down across the board by an average of 0.4% this morning. Nickel led the way with a 0.8% fall to $16,160 per tonne, after a 4.1% rally on Wednesday. The copper price was down by 0.5% at $5,674 per tonne.

In China, the November contract nickel price is up by 1.5%, playing catch-up with yesterday’s performance on the LME; October zinc was unchanged and the rest were down by an average of 2%, with October copper off by 0.1% at 46,540 yuan ($6,494) per tonne.

The spot copper price in Changjiang was up by 0.1% at 46,560-46,620 yuan per tonne and the LME/Shanghai copper arbitrage ratio was higher at 8.19, compared with 8.20 on Wednesday.

Precious metals
The spot gold price was recently quoted at $1,547.23 per oz, up 0.6% from Wednesday’s close of $1,547.23, having earlier set a fresh multi-year high at $1,550.40. The silver price continues to outperform and is up by 1.3% at $18.55 per oz, levels not seen since April 2017. The platinum price also surged after China said it was considering easing restrictions on car purchases, but why that did not affect palladium is less clear - it may be that investors just saw platinum as a metal that had been left behind since silver started to sprint higher.

On the SHFE, the December gold and silver contracts were up by 0.6% and 1.8% respectively. The outperformance in silver suggests a pick-up in retail interest in the precious metals.

Wider markets
The spot Brent crude oil price was recently quoted at $60.30 per barrel - its recent range being $55.86-61.48 per barrel.

The yield on benchmark US 10-year treasuries continues to highlight increased concern; it held near recent lows and was recently quoted at 1.4817%, little changed from 1.4811% where it was at a similar time on Wednesday. The German 10-year bund yield is weaker too at -0.7040%, compared with -0.7000% at a similar time on Wednesday.

In equities, Asian indices were mainly mixed on Thursday: Nikkei (-0.09%), Hang Seng (+0.11%), Kospi (-0.4%), the ASX200 (+0.1%) and the CSI 300 (-0.33%).

This follows a mixed performance in Western markets on Wednesday: in the US, the Dow Jones Industrial Average closed up by 1% at 26,036.10 and in Europe the Euro Stoxx50 closed down by 0.2% at 3,365.38.

Currencies
The dollar index is firmer and was recently quoted at 98.22 - the recent range being 97.56-98.46. The yen (106.11) has eased from recent strength at 104.79, the euro (1.1083) is drifting lower again, as is the Australian dollar (0.6737), while sterling (1.2196) has eased.

The yuan has weakened further and was recently at 7.1700.

Key data
There is a considerable amount of economic data out on Thursday, key data already out shows France’s second-quarter gross domestic product (GDP) was revised up to 0.3%, from an earlier reading of 0.2%. Key data out later includes Spanish and German consumer price index (CPI) and German unemployment change.

US data includes: GDP, goods trade balance, GDP prices, wholesale inventories, initial jobless claims, pending home sales and natural gas storage.

Today’s key themes and views
In the base metals, sentiment remains depressed, where there are not imminent supply concerns (nickel and lead). The global economy remains troubled by the trade wars and simmering geopolitical issues. As many of the situations seem in stalemate it is difficult to anticipate what will happen next, but those fearing the worst seem to be taking refuge in havens, where the precious metals are in focus.

While markets have been depressed for a long time now, we have not seen the deleveraging that hit the markets in 2008, whether we do remains to be seen. What could lift us out of the gloom – a new trade deal, or a significant stimulus announcement, perhaps?

The robustness of the gold rally and continuing fall in government bond yields do not bode well for the broader markets.



William Adams

william.adams@fastmarkets.com

Published

William Adams

August 29, 2019

10:00 GMT

London