MORNING VIEW: Most base metals tread water, while nickel remains buoyant

Weak manufacturing purchasing managers’ index (PMI) data out across major economies on Tuesday October 2 dampened the tone across most markets, with money rotating into havens.

 That said, the situation in the United States is still looking mixed – the IHS Markit manufacturing PMI edged up to 51.1, from 51, so still shows expansion, while the ISM reading fell to 47.8, from 49.1.

In addition, US total vehicle sales rose to an annualised 17.2 million units in September, up from 17 million units in August. Year to date, vehicle sales are running at a rate of 17 million units, compared with 17.1 over the same period last year.

  • With China on holiday volume on the LME has been light with 2,030 lots traded as of 06:48 am London time, compared with a more normal level of around 6,000 lots
  • Asian equities are weaker this morning, led by a 1.5% fall in Australia’s ASX 200

Base metals

Apart from three-month LME tin prices that are down 1.1% at $16,220 per tonne, the base metals complex is little changed this morning, with copper up 0.2% at $5,698.50 per tonne and with nickel unchanged at $17,370 per tonne. Nickel sold off to $16,895 per tonne on Tuesday, before running up to close near the days’ highs at $17,365.

With China closed and with option declaration this morning, trading could remain quite volatile – it seems odd that yesterday’s generally poor PMI data did not have more of a negative impact on base metal prices, especially as equities fell and haven assets rallied.

Precious metals
The spot gold price, having broken lower on Monday to set a low at $1,459.18 per oz on Tuesday, ended the day at $1,478.65 as concerns over the state of the global economy intensified. Silver continues to follow, as has platinum and even palladium has turned back from record highs and was last at $1,649.30 per oz.

Wider markets
Spot Brent crude oil prices are consolidating above Tuesday’s low at $58.38 per barrel and were recently quoted at $59.39 per barrel.

In line with the pick-up in haven demand the yield on benchmark US 10-year treasuries has weakened - it was recently quoted at 1.6529%, compared with 1.7031% at a similar time on Tuesday. The German 10-year bund yield has also eased and was recently quoted at -0.5500%, compared with -0.5440% on Tuesday.

Asian equities were weaker on Wednesday: The Nikkei was down 0.49%, the Hang Seng down -0.19%, the ASX 200 -1.53% lower and the Kospi fell1.95%.

This follows a stronger performance in Western markets on Tuesday, where in the US, the Dow Jones Industrial Average closed down by 1.28% at 26,573.04; in Europe, the Euro Stoxx50 closed down by 1.43% at 3,518.25.

Currencies
The dollar index is consolidating around 99.24, after its push up to fresh multi-year highs at 99.67 on Tuesday – it was last this high in May 2017 and the peak in 2017 was 103.82.

The Australian dollar (0.6704) and sterling (1.2265) remain on a back footing, while the yen (107.76) is consolidating and the euro (1.0924) is off recent lows.

Key data
Wednesday’s economic data includes data on Japan’s consumer confidence that dipped to 35.6 in September, from 37.1 in August. In Europe Spanish unemployment change climbed 13,900 in September, which was better than the 37,600 expected, and later there is data on UK construction, US ADP non-farm employment change and crude oil inventories.

In addition, Federal Open Market Committee John Williams is speaking.

Today’s key themes and views

Against the backdrop of weak economic data it is hard to be bullish for the base metals – for those metals that have been range bound, we expect more sideways trading, but those that have been more directional on the upside, notably nickel and lead, may struggle to hold on to their gains – this is especially so for nickel given Indonesia is likely to ramp up exports ahead of the ban in nickel ore exports that starts in 2020. For the base metals as a whole, we think the overall direction will be driven by how the next round of US/China trade talks go – until then economic data is likely to set the tone.

We have viewed gold as being vulnerable in the short term because it was looking toppy on the charts, but it was interesting that despite breaking lower on Monday, prices did not stay down for long. That said, they are still looking vulnerable. There are still many global issues to be settled and until they are, demand for havens is likely to remain high but the market may now be in limbo until the trade talks start to set the direction again.

William Adams

william.adams@fastmarkets.com

Published

William Adams

October 02, 2019

09:45 GMT

London