MORNING VIEW: Markets cool after Trump tariffs pour cold water on sentiment

While the metal markets have hardly been bullish, United States President Donald Trump undermined confidence across broad markets when he re-imposed tariffs on steel and aluminium imports from Argentina and Brazil and threatened France with tariffs too.

This has raised concerns that a US-China trade deal may be delayed, especially following Trump’s signing legislation supporting protesters in Hong Kong, and this puts the focus on whether Trump will put 15% tariffs on another $160 billion of Chinese imports from December 15.

  • Asian equities mainly weaker, although China’s CSI 300 is up by 0.4%.
  • US purchasing managers’ index (PMI) data gave mixed messages on Monday, with the Markit PMI rising for the fourth month, while the ISM PMI fell for the fourth month.

Base metals
Three-month base metals prices on the London Metal Exchange were mixed this morning, Tuesday December 3, with aluminium off by 0.5%, zinc up by 0.7% and nickel and copper up by 0.2%, with the latter at $5,869 per tonne, while lead and tin were little changed.

Trading volume has been below average with 4,016 lots traded as at 6.36am London time.

In China, the most-traded base metals contracts on the Shanghai Futures Exchange were for the most part weaker, with January aluminium bucking the trend with a 0.3% gain, while the rest were down between 0.1% for January tin and 1.8% for January lead. January copper was down by 0.3% at 47,090 yuan ($6,695) per tonne.

The spot copper price in Changjiang was down by 0.4% at 47,120-47,170 yuan per tonne and the LME/Shanghai copper arbitrage ratio was at 8.03, compared with 8.02 at a similar time on Monday morning.

Precious metals
The precious metals prices were little changed this morning, with spot gold at $1,461.82 per oz. Silver and platinum are following gold’s lead, but palladium, recently quoted at $1,850 per oz, is holding up near record-high ground. For now, the three-month downward trend in gold prices has turned sideways, which highlights how uncertainty over trade has started to creep up again.

Wider markets
The spot Brent crude oil price continues to consolidated after November 29’s sharp fall, it was recently quoted at $61.06 per barrel, down from last week’s high of $64.30 per barrel.

The yield on benchmark US 10-year treasuries has pulled back slightly, again highlighting a pick-up in nervousness. It was recently quoted at 1.8300% compared with around 1.8430% at a similar time last Monday. The German 10-year bund yield, however, was firmer and was recently quoted at -0.2730%, compared with -0.3050% at a similar time on Monday.

Asian equities were mainly weaker: the Nikkei (-0.64%), the Kospi (-0.38%), the Hang Seng (-0.16%) and the ASX 200 (-2.19%), while China’s CSI 300 (+0.39%) bucked the trend.

This follows a weaker performance in Western markets on Monday, where in the US, the Dow Jones Industrial Average closed down by 0.96% at 27,783.04; in Europe, the Euro Stoxx50 closed down by 2.08% at 3,626.66.

Currencies
The dollar index took a tumble on Monday, falling to 97.86, on the back of mixed US economic data and as Trump flexed his tariff muscles again. The index has been choppy since early November and has been within a 97.16-to-98.55 range.

The other major currencies we follow have climbed as the dollar has slipped: the euro (1.1076), the Australian dollar (0.6839) and sterling (1.2965), while the yen (109.09) is weaker.

The yuan, at 7.0450 has weakened further.

Key data
Today’s economic calendar is fairly light, key data will be the European Union producer price index and US total vehicle sales. A two-day North Atlantic Treaty Organization (NATO) summit starts today in the United Kingdom, which Trump is attending.

Today’s key themes and views
It is more of the same on the US-China trade scene with a preliminary trade deal apparently within reach, but in danger of being delayed, or worse, while other geopolitics unfold. For the base metals on the LME, most are oscillating sideways within their wide September to early-November ranges, the exceptions are nickel and lead that initially surprised on the upside and have more recently been giving back a good deal of the earlier gains.

For now the metals remain quite mixed while they trade their own fundamentals and wait for news on a trade deal. While the Chinese PMI data is constructive, the market is unlikely to get too directional again until the preliminary trade deal is signed or scuppered.

Gold prices are consolidating within their three-month downward trend, support is evident around the $1,450-per-oz level and the souring of trade sentiment has provided somewhat of a boost, but not much. The direction of trade talks is expected to set the direction for gold.

base metals
precious metals

macroeconomic data

William Adams

william.adams@fastmarkets.com

Published

William Adams

December 03, 2019

09:10 GMT

London