MORNING VIEW: Countertrend moves underway in base metals despite risk-on in equities

There are cross currents flowing through broader markets, risk-on is still evident in equities, base metals are generally pulling back in countertrend moves from the stronger tone seen in October and early November and there is some nervousness around judging by the pick-up in demand for havens in recent days.

  • Another record close for the S&P500.
  • LME three-month nickel price down by around 20% from September high of $18,850 per tonne.
  • Federal Reserve paints an upbeat picture of the US economy, suggesting interest rates will be on hold for a while.

Base metals
Three-month base metals prices on the London Metal Exchange were for the most part firmer on the morning of Friday November 15, although the underlying short-term trends are to the downside. Nickel and tin remain under pressure and were off by 0.5% and 0.6% respectively, while the rest were up by an average of 0.4%, led by a 0.8% gain in copper that was recently quoted at $5,850 per tonne.

Traded volume has been average with 6,021 lots traded as at 6.16am London time.

In China, the most-traded base metals contracts on the Shanghai Futures Exchange were mixed, with February nickel leading on the downside with a 2.4% drop. January aluminium and copper were down by 0.3% and 0.1% respectively with the latter recently quoted at 46,920 yuan ($6,681) per tonne. The other SHFE base metals were up by an average of 0.3%.

The spot copper price in Changjiang was down by 0.2% at 46,800-47,000 yuan per tonne and the LME/Shanghai copper arbitrage ratio was recently at 8.02.

Precious metals
Spot gold prices were down by 0.3% at $1,464.20 per oz this morning while prices consolidate this week’s rebound from lows at $1,445.68 per oz. That said, judging by the chart patterns in silver, platinum and palladium, the rebounds look weak which suggests the markets are tracing out bearish flags on the charts.

Wider markets

The yield on benchmark US 10-year treasuries has fallen back and was recently quoted at 1.8432%, compared with around 1.9209% at a similar time on Wednesday morning. The German 10-year bund yield was also weaker and was recently quoted at -0.3360%, compared with -0.2523% at a similar time on Wednesday.

Asian equities were mainly firmer this morning: the Hang Seng (+0.09%), the Nikkei (+0.7%), the Kospi (+1.07%), the ASX 200 (+0.87%), while China’s CSI 300 is off by 0.74%.

This follows a mixed performance in Western markets on Thursday, where in the United States, the Dow Jones Industrial Average closed little changed, off by 0.1% at 27,781.96, the S&P 500 closed up by 0.08% at 3,096.63 and in Europe, the Euro Stoxx50 closed off by 0.29% at 3,688.81.

Currencies
The dollar index is consolidating this morning and was recently quoted at 98.17, this after a strong run last week that had seen it rise from a low of 97.16 on November 4 to 98.40.

The other major currencies we follow are also consolidating: the euro (1.1019), the Australian dollar (0.6792), the yen (108.56) and sterling (1.2873).

The yuan, at 7.0095, is slightly firmer.

Key data
Data already out on Friday showed Japan’s revised industrial production climbed by 1.7%, instead of earlier reports of 1.4% growth.

Key data out later includes the European Union’s consumer price index (CPI), Italian and EU trade balances, with US data including retail sales, the Empire State Manufacturing Index, import prices, industrial production, capacity utilization and business inventories.

Today’s key themes and views
The pullbacks across the base metals seem to be dominating for now, but we do see these as countertrend moves, assuming a partial trade deal between the US and China is announced before too long. Any actual deal could well boost business confidence and lead to some restocking along the supply chain, which could give apparent demand a much needed boost.

Gold prices, along with other havens, have been firmer in recent days, but basis the above any trade deal is likely to revive investor confidence, which in turn is likely to see the opportunity cost of holding gold increase.

base metals
precious metals

macroeconomic data

William Adams

william.adams@fastmarkets.com

Published

William Adams

November 15, 2019

08:44 GMT

London