METALS MORNING VIEW 02/08: Metals prices attempt to rebound following Wednesday’s weakness

Aug 2, 2018 - 10:40 AM GMT
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Three-month base metals prices on the London Metal Exchange were up across the board by an average of 0.7% on the morning of Thursday August 2.

Zinc led the gains with a 1.3% increase to $2,572 per tonne, while copper was up by 0.7% at $6,168 per tonne.

This follows a downbeat day on Wednesday when the complex closed with losses averaging 2.7%, led by a 4.8% drop in nickel and 3.6% fall in zinc. The weaker tone was due to heightened trade concerns in the market after US President Donald Trump threatened to raise tariffs against China.

Volume has been high this morning, with 10,870 lots traded as at 07.51am London time – high volume and across-the-board gains in prices bodes well for the complex, but sentiment is likely to remain fragile while trade wars rage on.

Precious metals were broadly stronger this morning; platinum rose by 0.6%, palladium and gold were up by 0.2% –with the latter at $1,218.90 per oz, while silver was unchanged. But, this follows weakness on Wednesday, when gold and silver prices fell by around 0.5%, while the platinum group metals fell by an average of 1.7%.

In China, base metals prices on the Shanghai Futures Exchange followed Wednesday’s weaker performance on the LME, with prices down an average of 1.4% this morning. The most-actively traded September copper contract down by 1.6% at 49,140 yuan ($7,210) per tonne.

Spot copper prices in Changjiang were down by 1.5% at 49,070-49,250 yuan per tonne and the LME/Shanghai copper arbitrage ratio was at 7.97.

In other metals in China, the September iron ore contract on the Dalian Commodity Exchange was down by 0.8% at 476.50 yuan per tonne. On the SHFE, the October steel rebar contract was down by 1.5%, while the December gold and silver contracts were off by 0.1% and 0.3% respectively.

In wider markets, spot Brent crude oil prices were up by 0.02% at $72.59 per barrel this morning. The yield on US 10-year treasuries was firmer at 2.9905%, while the German 10-year bund yield was also firmer at 0.4750%.

Asian equity markets were weaker on Thursday with markets reacting to Trump’s latest tariff threats: Nikkei (-1.03%), Kospi (-1.60%), Hang Seng (-2.31%), CSI 300 (-2.22%) and ASX200 (-0.56%). This follows a weaker performance in western markets on Wednesday; in the US, the Dow Jones closed down by 0.32% at 25,333.82, while in Europe the Euro Stoxx 50 closed down by 0.66% at 3,486.15.

Poor US total vehicle sales for July that fell to 16.8 million units, annualized, from 17.5 million units and weaker than expected US purchasing managers’ index (PMI) data, are also weighing on sentiment. That said, the US Federal Open Market Committee remains upbeat about the US economy.

The dollar index, at 94.86, is firmer within its recent 93.71-95.66 range. On the chart, it looks like the dollar is building the right shoulder of a large inverse head-and-shoulder formation.

Most of the other major currencies we follow are consolidating with a slightly weaker bias; sterling (1.3080), the euro (1.1632), the Australian dollar (0.7378), while the yen is firmer at 111.63.

The yuan remains on a back footing and was recently quoted at 6.8199. The other emerging market currencies we follow are also looking weaker this morning.

The economic agenda is busy again today, with data out already showing Japan’s monetary base climbed 7% and Spanish unemployment change fell 27,100.

European data out later includes UK construction producer price index (PPI), EU PPI and the Bank of England’s interest rate decision – the bank is expected to raise rates by 25 basis points and will be updating its latest monetary policy decisions. US releases include Challenger job cuts, initial jobless claims, factory orders and natural gas storage.

Base metals prices had pushed off recent lows but failed to attract follow-through buying and Wednesday’s weakness suggests that, at best, prices are still base building and they could test support again. Continuing and escalating trade war rhetoric is zapping traders and business and in this climate it is difficult to see buyers return with confidence. That said, if bases are established then there will be potential for short-covering. Meanwhile for copper, prices could rally if Escondida workers vote for a strike.

In the precious metals, gold prices are holding in low ground, while silver and platinum prices are giving back more of their recent gains. Meanwhile, palladium prices are weaker but are still well above recent lows. Fund short positions are large, so short-covering could become a bullish factor before too long, especially if the US Federal Reserve were to become less hawkish as a result of the likely contagion from a trade war.

London Metal Exchange, base metals prices

Shanghai Futures Exchange, base metals prices

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