Base metals remain on back foot, dollar strength a headwind

Base metals prices on the London Metal Exchange were mainly weaker on the morning of Monday November 8, but those on the Shanghai Futures Exchange were mainly firmer as they followed the strength seen on the LME on Friday.

  • US Congress’ passing of the long-awaited infrastructure bill bodes well for the metals
  • Chinese trade data show a record surplus, but weaker than expected imports highlight weaker domestic demand
Base metals
Three-month base metals prices on the LME were for the most part weaker - with the exception of copper, which was little changed at $9,505 per tonne - with down by an average of 0.7%, led by a 1.2% fall in tin to $36,775 per tonne.

The most-active base metals contracts on the SHFE were mixed, with the December contracts for lead and zinc down by 0.5% and 0.8% respectively, while the rest were up by an average 0.5%, led by a 1% rise in December nickel. December copper was up by 0.7% at 70,000 yuan ($10,940) per tonne.

Precious metals
Spot gold was down by 0.1% at $1,816.63 per tonne, but the rest of the precious metals were up by an average of 0.3%. The drop in US treasury yields and the dovish stance of most central banks last week underpinned a stronger gold price on Friday, when prices closed up by 1.5%.

Wider markets
The yield on US 10-year treasuries dropped to 1.47 this morning, compared with 1.54% at a similar time on Friday.

Despite generally strong US equity indices on Friday, Asia-Pacific equities were mainly weaker on Monday morning: the Nikkei (-0.35%), the Hang Seng (-0.5%), the ASX 200 (-0.06%) and the Kospi (-0.31%) were all down, while the CSI 300 (+0.12%) bucked the trend.

While the central banks might have refrained from being more hawkish, it is clear that monetary policy will start to return to a more normal situation in the quarters ahead and that might become an issue for emerging markets with high US dollar-denominated debts.

The US Dollar Index put in a strong performance on Thursday and Friday but is consolidating those gains so far on Monday. The index was recently at 94.30, compared with 94.32 at a similar time on Friday, but it reached a year-to-date high on Friday at 94.64 - up from this year’s previous high of 94.56, set on October 12.

Most of the other major currencies were consolidating this morning after recent weakness: the euro (1.1554), the Australian dollar (0.7402), sterling (1.3472) and the Japanese yen (113.56).

Key data
Economic data already out showed Japan’s leading indicators came in at 99.7% in September, after 101.3% in August.

Later there is key data on EU investor confidence, with US data on mortgage delinquencies and a financial stability report from the Federal Open Market Committee (FOMC).

In addition, there are Eurogroup meetings and a barrage of central bankers scheduled to speak including Federal Reserve chair Jerome Powel, Bank of England governor Andrew Baily and FOMC members John Williams, Richard Clarida, Michelle Bowman and Charles Evans.

Monday’s key themes and views
Most of the base metals are in retreat, with the exception of tin, which has held up relatively well. The stronger dollar is no doubt a headwind and, overall, it looks as though a longer period of profit-taking activity is likely after what has been a very strong market. For now, we still expect this will turn out to be a correction within the overall bull market.

Gold prices broke higher out of the recent range on Friday, with dovishness from the central banks and strong US jobs data providing the fuel, which suggests gold is once again focusing on inflationary pressures.

William Adams


William Adams

November 08, 2021

09:36 GMT