MORNING VIEW: LME base metals prices calm despite US-China trade progress

The combination of some easing in Chinese lending rates and talk that United States officials may be prepared to drop some tariffs on China has led to more risk-on in broader markets.

The three leading US indices, the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite closed on record highs on Monday November 4 and US treasury yields are climbing, but the metals are looking quite mixed this morning.

  • Asian equities were stronger across the board on Tuesday, led by a 1.8% rise in the Nikkei 225
  • Oil prices looking stronger on trade deal optimism

Base metals
Three-month base metals prices on the London Metal Exchange were either side of unchanged this morning, with copper and tin showing the most gains by being up by 0.2%, which put copper at $5,897.50 per tonne.

Volume has been light with 3,324 lots traded as at 5.40am London time. Considering US equities are at record highs and progress is being made toward a partial trade deal, it is surprising metals are not stronger.

In China, the most-traded base metals contracts on the Shanghai Futures Exchange were mixed this morning, the December nickel contract led on the downside with a 1.7% fall, December zinc and lead were down by 0.5% and 0.4% respectively, while December copper, aluminium and January tin were up by 0.4%, with copper at 47,190 yuan ($6,709) per tonne.

The spot copper price in Changjiang was up by 0.3% at 47,140-47,190 yuan per tonne and the LME/Shanghai copper arbitrage ratio was unchanged at 1:8.

Precious metals
Spot gold prices continue to oscillate sideways-to-higher with prices recently quoted at $1,503.28 per oz - the recent low on October 30 was $1,481.25 per oz. With equities upbeat, treasury yields on the rise and some optimism on trade, it does seem as though gold prices are holding up well for now.

Silver prices are also climbing and were recently quoted at $18 per oz, while platinum and palladium prices are edging lower, albeit from high ground.

Wider markets
Spot Brent crude oil prices were firmer this morning, with prices up by 0.19% from Monday’s close and recently quoted at $62.26 per barrel.

The yield on benchmark US 10-year treasuries has firmed again suggesting risk-on - it was recently quoted at 1.8063%, compared with around 1.6925% in mid-October. The German 10-year bund yield was also stronger, it was recently quoted at -0.3513%, compared with -0.414% in mid-October.

Asian equities were stronger this morning: China’s CSI 300 (+0.73%), the Nikkei (+1.76%), the Hang Seng (+0.53%), the Kospi (+0.58%) and the ASX 200 (+0.15%).

This follows a stronger performance in Western markets on Monday, where in the US, the Dow Jones Industrial Average closed up by 0.42% at 27,462.11; in Europe, the Euro Stoxx50 closed up by 1.14% at 3,665.21.

Currencies
The dollar index is firmer, albeit within its recent downward trend, and was recently quoted at 97.57. It is down from the October 1 high at 99.67, but above recent lows at 97.12 and 97.16.

Most of the other major currencies we follow are consolidating recent gains, with the euro at 1.1127, sterling at 1.2880, and the Australian dollar at 0.6909, but the yen is on a back footing at 108.80, suggesting some of its haven investors are turn more risk-on.

Key data
The economic agenda is busy on Tuesday with data out already showing China’s Caixin services purchasing managers’ index (PMI) falling to 51.1 in October, from 51.3 in September. Key data out later includes services PMI data out in the United Kingdom and US, European Union producer price index data, US trade balance, job openings and consumer confidence data from Investor's Business Daily (IBD), TechnoMetrica Institute of Policy and Politics (TIPP).

Today’s key themes and views
The base metals are split into two groups in regard to current underlying trends, with copper, aluminium and zinc trending higher, while nickel, lead and tin, having been trending higher are now heading lower – this is especially so for nickel and lead that had been the more robust metals on the upside in recent months. While nickel has been in its own bubble and is likely to trade its own fundamentals while it adjusts to the complex set of cross currents, we would expect the other metals to benefit from optimism on a trade deal, but it may be that they are waiting for an actual agreement.

Conversely, the precious metals are generally holding up well, we would expect them to soften if a trade deal comes about, but it may be the market is waiting to see if anything undoes a deal.

base metals
precious metals

macroeconomic data

William Adams

william.adams@fastmarkets.com

Published

William Adams

November 05, 2019

08:07 GMT

London