MORNING VIEW: Dip-buying boosts copper, aluminium while others consolidate; broader markets buoyant

The dip in base metals prices at the end of last week was a one-day wonder for copper and aluminium after prices for both metals rebounded yesterday, while consolidation has set in again this morning, Tuesday August 11, and the other metals continue to consolidate too.

  • Asian-Pacific equities and pre-market western equity index futures were upbeat this morning.
  • But gold prices are down by 0.9% at $2,009.46 per oz.
  • Covid-19 cases took 6 months to reach 10 million, but only 6 weeks to reach 20 million.

Base metals
Trading on the London Metal Exchange has been quiet so far this morning, with three-month base metals prices mixed and for the most part little changed. Nickel and zinc were both up by 0.4% at $14,280 per tonne and $2,391 per tonne respectively, aluminium was down by 0.2% at $1,780 per tonne, while the rest are little changed, with copper up by $3 per tonne at $6,404 per tonne.

Volume has been light with 3,210 lots traded as of 6.23am London time.

The most-traded base metals contracts on the Shanghai Futures Exchange were also mixed with September aluminium, zinc and lead, along with October nickel, down by an average of 0.5%, while September copper was up by 0.8% at 50,710 yuan ($7,279) per tonne and October tin was up by 0.3%.

Precious metals
Spot gold prices are heading lower this morning, this after a day of consolidation on Monday; prices are now down by 3.1% from the August 6 high at $2,074.25 per tonne.

Silver was down by 1.5% at $28.62 per oz, platinum was down by 0.2% at $984 per oz and palladium was up by 0.3% at $2,252.20 per oz.

Wider markets
The yield on US 10-year treasuries was at 0.58% this morning, this after 0.57% at a similar time on Monday, which ties in with the slight pick-up in risk appetite across markets. But overall the yield seems to be swaying between 0.5% and 0.6%, suggesting a base may be forming.

Asian-Pacific equities were firmer this morning: the Kospi (+1.47%), the CSI 300 (+0.75%), the ASX 200 (+0.39%), but the Hang Seng (+2.43%) and the Nikkei (+1.75%).

Currencies
The dollar index is consolidating at around 93.54 this morning, little changed from where it was at a similar time on Monday - the low on August 6 was 92.49.

With the dollar holding up off the recent lows, the other main currencies are consolidating off recent highs: the euro (1.1744), the Australian dollar (0.7168), the yen (106.12) and sterling (1.3073).

Key data
Data already out this morning showed the British Retail Consortium’s reading of retail sales climb by 4.3% year on year in July, this was better than the 2.5% gain expected, and Japan’s economy watchers sentiment climbed to 41.1 in July, from 38.8 in June.

Key data out later includes the latest on UK employment, EU and German Zentrum fur Europaische Wirtschaftsforschung (ZEW) economic sentiment, US small business index, US producer price index and US mortgage delinquencies.

Today’s key themes and views
At face value the one-day dip in copper and aluminium prices on the LME, the two most liquid contracts, suggests strong underlying bullish sentiment, but the fact the other metals are not joining in with the rebounds is noteworthy. It raises the question whether the dip-buyers were in too much of a hurry to jump back in the leaders.

Overall, we still feel the metals were getting overbought last week and a correction was likely and we would not be surprised to see the correction unfold further. But we remain bullish in the medium term given the amount of money that has been pumped into the financial system and into infrastructure projects.

Last week we thought gold was starting to look overbought in the short term - this is now happening. Key now will be how far and how long-lived the dip is. We remain overall bullish - but a short-lived, sharp dip could unwind the overbought condition, readying it for another up leg.




William Adams

william.adams@fastmarkets.com

Published

William Adams

August 11, 2020

08:32 GMT

London