LME base metals and broader markets unfazed by US Fed taper announcement

Base metals prices on the LME and SHFE were mixed early on Thursday November 4, but neither the metals nor the broader markets have been rattled by the US Federal Reserve's announcement that it is to start tapering its monthly bond buying programme.

  • The United States Federal Reserve to trim bond buying by $15 billion a month - it had been buying $120 billion a month
  • A pick-up in Covid-19 cases in China threatens to be yet another headwind for China's economic activity
  • But the US economy still experiencing a robust recovery judging by yesterday’s employment and services purchasing managers index (PMI) data
  • Markets are waiting to see if the Bank of England raises interest rates at today’s meeting
Base metals
Three-month base metals prices on the London Metal Exchange were mixed, but overall up by an average of 0.3% on Thursday morning, with gains in copper, nickel and zinc of 0.9%, 1.1% and 1% respectively, while aluminium, lead and tin were down by 0.7%, 0.1% and 0.3% respectively (see table below). Copper was recently at $9,569 per tonne as it consolidates after recent losses - the recent range has been $10,452.50-$9,360 per tonne.

The most-active base metals contracts on the Shanghai Futures Exchange were also mixed, with the December contracts for aluminium and nickel down by 0.7% and 1.4% respectively, while the rest were up by an average of 0.6%, with December copper up by 0.1% at 70,480 yuan ($10,526) per tonne.

Precious metals
The precious metals were mixed with spot gold down 0.3% at $1,771.66 per oz and silver down 1.1% to $23.46 per oz, while platinum was up by 0.2% at $1,039 per oz and palladium up 1.3% at $2,025.30 per oz.

Wider markets
With the US Fed starting its tapering, the yield on US 10-year treasuries climbed and was recently at 1.59%, compared with 1.53% at a similar time on Wednesday.

The Dow Jones set a fresh high on Wednesday and Asia-Pacific equities were upbeat on Thursday morning: the Nikkei (+0.75%), the Hang Seng (+0.17%), CSI 300 (+0.91%), the Kospi (+0.25%) and the ASX 200 (+0.48%).

Currencies
The US Dollar Index continues to consolidate and has not been that moved by the Fed’s decision. It was recently at 94.09, compared with 94.08 at a similar time on Wednesday.

The other major currencies were flat or weaker: sterling (1.3654), the Australian dollar (0.7429), the euro (1.1580) and the Japanese yen (114.22).

Key data
Thursday’s is a bumper-day for economic data and announcements – data already out showed Germany’s factory orders climbed 1.3% in September, after an 8.8% decline in August.

Later, services PMI data comes out across Europe, along with data on EU producer prices (PPI) and there will be US data on Challenger job cuts, initial jobless claims, preliminary non-farm productivity, preliminary unit labor costs, the trade balance and natural gas storage.

In addition, the Bank of England will provide an update on its monetary policy, including its interest decision; there is a joint Opec and non-Opec meeting and European Central Bank (ECB) president Christine Lagarde, Bank of England governor Andrew Bailey and UK Monetary Policy Committee member Jon Cunliffe are scheduled to speak.

Thursday’s key themes and views

As mentioned on Tuesday, while China might be slowing down, Europe and the United States are still in expansion mode that should help support demand for metals, especially while supply chains remain choked. Most of the metals are looking relatively weak, apart from lead and tin, and most remain vulnerable, so we wait to see if the long-held theme of dips being well supported remains in play, or whether there is another downward leg is waiting to unfold. Whether support is found here, or at a lower level, we still remain bullish overall.

Gold prices spiked lower briefly on Wednesday on the release of strong US employment data. It did recover some of the lost ground but remains under pressure. With central banks announcing monetary policy and the focus on when interest rates will rise, gold may well remain on the back foot. Given where the price is - and where the dollar, the yen and the Dow currently sit - it does not look as though investors are nervous, so the path of least resistance may remain to the downside.



William Adams

william.adams@fastmarkets.com

Published

William Adams

November 04, 2021

08:53 GMT

London

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