MORNING VIEW: LME base metals prices consolidate Tuesday’s gains; data-heavy day ahead of Thanksgiving may lead to choppy trading

Further positive signs of a phase one trade deal between the United States and China boosted sentiment across a broad selection of markets on Tuesday November 26, and that included most of the base metals, but so far today metal prices have generally been consolidating.

  • US equity markets climbed to fresh highs on Tuesday after US President Donald Trump said the US and China are close to agreeing a partial trade deal.
  • There is a barrage of US data out today ahead of Thursday's Thanksgiving holiday.
  • Asian equities and havens are mixed this morning, suggesting a deal is not in the bag yet.

Base metals
Three-month base metals prices on the London Metal Exchange were mixed this morning with copper, aluminium, nickel and tin down by an average of 0.2%. The decline was led by a 0.4% fall in copper to $5,920 per tonne, but the red metal was one of the top performers on Tuesday with a 1.2% gain. Lead and zinc are adding to Tuesday’s gains and are up 0.5% and 0.3% respectively this morning.

Trading volume has been average with 4,701 lots traded as at 6.26am London time.

In China, the most-traded base metals contracts on the Shanghai Futures Exchange were also mixed this morning with January copper and zinc leading on the upside with gains of 0.5%, which puts copper at 47,340 yuan ($6,728) per tonne, while the rest were weaker: January aluminium (-0.3%), January lead (-0.6%), January tin (-0.2%) and February nickel (-0.1%).

The spot copper price in Changjiang was up by 0.5% at 47,310-47,370 yuan per tonne and the LME/Shanghai copper arbitrage ratio dipped to 8, compared with 8.02 at a similar time on Tuesday.

Precious metals
The precious metals are weaker this morning with spot gold off by $0.65 per oz at $1,459.75 per oz, silver was down by 0.4% at $17 per oz and the platinum group metals were off by 0.1%. It is interesting that gold and silver, despite a stronger dollar, followed the base metals higher on Tuesday - we would expect bullish news on trade to be bearish for bullion.

Wider markets

The spot Brent crude oil price is also upbeat at $64.17 per barrel, which is up by 0.9% compared with a similar time on Tuesday morning, putting the price in high ground.

The yield on benchmark US 10-year treasuries has eased and was recently quoted at 1.7393%, compared with around 1.7596% at a similar time on Tuesday morning. The German 10-year bund yield was also weaker and was recently quoted at -0.3800%, compared with -0.3480% at a similar time on Tuesday.

Asian equities were for the most part firmer this morning: the Nikkei (+0.28%), the Kospi (+0.31%), the Hang Seng (+0.14%), the ASX 200 (+0.93%), but China’s CSI 300 was down by 0.41%.

This follows a mixed performance in Western markets on Tuesday, where in the US, the Dow Jones Industrial Average closed up by 0.2% at 28,121.68; in Europe, the Euro Stoxx50 closed down by 0.06% at 3,705.55.

Currencies
The dollar index is consolidating in high ground and was recently quoted at 98.35. The index has been choppy since early November and has been within a 97.16-to-98.45 range.

The other major currencies we follow are also consolidating in recent low ground: the euro (1.1013), the Australian dollar (0.6779), the yen (109.17) and sterling (1.2837).

The yuan, at 7.0247 is slightly firmer compared with 7.0323, at a similar time on Tuesday.

Key data
Data out earlier on Wednesday in China showed China’s industrial profits fell by 9.9% in October, which was the steepest fall in eight months. Manufacturing profits in the first ten months of the year were down by 4.9%, compared with a 3.9% drop in the first nine months of the year.

There is a barrage of data out in the US this afternoon including durable goods orders, preliminary gross domestic product, initial jobless claims, Chicago purchasing managers index, personal income, personal spending and personal consumption expenditures’ consumer price index, pending home sales, crude oil and natural gas inventories and the beige book – a data-heavy day ahead of Thursday’s break for Thanksgiving.

Today’s key themes and views
With lead and zinc prices pulling out of their dives on Tuesday and nickel doing so last week, while copper and aluminium have started to see stronger rebounds, perhaps the market is preparing for a more bullish move should a partial trade deal come about. This may not mean traders are going long, but it may mean shorts are reducing exposure. The timing of this adjustment may be tuned to the Thanksgiving holiday with US markets closed on Thursday and likely to be illiquid on Friday.

Gold has been trending lower in recent days but is finding support around the $1,450-per-oz level. While record-setting US equites suggest sentiment is becoming more risk-on, it may be that investors fearing either a correction in equities, or another setback in trade talks, or both, are prepared to buy into gold as insurance, especially now that gold prices have pulled back 6% from their highs.

base metals
precious metals

macroeconomic data

William Adams

william.adams@fastmarkets.com

Published

William Adams

November 27, 2019

08:44 GMT

London

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