MORNING VIEW: LME base metals prices mixed, risk sentiment weaker in line with increased trade tension

Discouraging news from China over the “phase one” trade deal with the United States has led to less risk appetite, which for now is affecting the broader markets more than the metals, which were broadly firmer on Thursday November 21.

  • Asian equities weaker, led by a 1.5% decline in the Hang Seng.
  • US 10-year treasury yields fall as the outlook for a trade deal deteriorates.

Base metals
Three-month base metals prices on the London Metal Exchange were for the most part firmer this morning, which given the trade news seems odd, but as noted of late the metals have not reacted that positively when there has been positive vibes on a trade deal, so it understandable that prices may not react when the mood changes for the worse.

The LME base metals complex was up by an average 0.2% as at 7.06am London time, with copper and lead down by 0.1% and 0.4% respectively, while the rest were up by an average of 0.4%. Traded volume has been average with 5,799 lots traded.

In China, the most-traded base metals contracts on the Shanghai Futures Exchange were mixed, with January lead, zinc and February nickel down 0.8%, 1.4% and 0.9% respectively. January aluminium and tin were up by 0.8% and 2.2% respectively, while January copper, at 47,110 yuan ($6,697) per tonne, was off by just 10 yuan per tonne.

The spot copper price in Changjiang was down by 0.3% at 47,030-47,100 yuan per tonne and the LME/Shanghai copper arbitrage ratio was recently at 8.07.

Precious metals
The rebounds in the precious metals have halted for now, it is unclear whether the recent rallies were just countertrend moves, which may have formed bearish flags on the charts. Spot gold prices were off by 0.2% at $1,470.90 per oz this morning, up from lows at $1,445.68 per oz on November 12, but below Wednesday’s high of $1,478.90 per oz.

Wider markets
The yield on benchmark US 10-year treasuries has fallen back and was recently quoted at 1.7369%, compared with around 1.8094% at a similar time on Tuesday morning. The German 10-year bund yield was also weaker and was recently quoted at -0.3740%, compared with -0.3360% at a similar time on Tuesday.

Asian equities were weaker this morning: the Nikkei (-0.48%), the Kospi (-1.35%), the Hang Seng (-1.5%), the ASX 200 (-0.74%) and China’s CSI 300 (-0.47%).

This follows a weaker performance in Western markets on Wednesday, where in the US, the Dow Jones Industrial Average closed down by 0.4% at 27,821.09, and in Europe, where the Euro Stoxx50 closed off by 0.34% at 3,683.88.

Currencies
The dollar index has been consolidating in recent days and was recently quoted at 97.88, this after some choppy trading since early November that has seen it rise from a low of 97.16 on November 4 to 98.45 on November 13.

Other major currencies we follow are also consolidating: the euro (1.1078) and sterling (1.2935) have been climbing, while the Australian dollar (0.6798) and the yen (108.54.

The yuan, at 7.0372, is weaker, compared with its recent show of strength to 6.9670 on November 7.

Key data
Data out already on Thursday showed Japan’s all industries activity rise 1.5%, as expected. Key data out later includes European Union consumer confidence, with US data including the Philly Fed manufacturing index, initial jobless claims, leading indicators, existing home sales and natural gas storage.

In addition, the European Central Bank will release its monetary policy meeting accounts.

Today’s key themes and views
While the trade news continues to alternate between positive and negative, which undermines business and investor confidence, it is hardly surprising that the path of least resistance is to the downside for the industrial metals. Given the potential for the trade war to escalate with more tariffs placed on more goods, if progress is not made, then we would not be surprised to see further weakness.

But the further prices sink, the more powerful a rebound there could be if an actual deal is agreed as that is likely to lead to some restocking along the supply chain, which could give apparent demand a much needed boost.

Gold prices, along with other haven assets, have been firmer in recent days and with trade talks apparently souring more recently there may be further room on the upside.

base metals
precious metals

macroeconomic data

William Adams

william.adams@fastmarkets.com

Published

William Adams

November 21, 2019

09:15 GMT

London