METALS MORNING VIEW 07/09: Metals remain on the defensive while market awaits news on US-China tariffs

Sep 7, 2018 - 9:45 AM GMT
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Three-month base metals prices on the London Metal Exchange were for the most part weaker this morning, Friday September 7, which follows another mixed performance by the complex on Thursday.

Nickel continued to lead on the downside with a 1.6% drop, while aluminium also bucked the down trend with a 0.3% gain. The rest were down between 0.1% for lead and 0.7% for zinc, with copper prices down by 0.6% at $5,873 per tonne.

Volume across the complex has been above average with 8,839 lots traded as at 07.06am London time.

The precious metals were little changed this morning; spot silver prices were down by 0.2%, platinum prices were up by 0.2%, palladium prices were up by 0.1% and spot gold prices were slightly firmer at $1,200.40 per oz. This follows a generally firmer day on Thursday.

In China, the base metals prices were mixed on the Shanghai Futures Exchange; the November nickel contract leads on the downside with a 0.8% drop, while the January tin and October aluminium contracts were down by 0.3% and 0.1% respectively. The others were higher with the October zinc contract up by 0.7%, the October lead contract up by 0.3% and the most actively traded October copper contract up by 0.1% at 47,570 yuan ($6,964) per tonne.

Spot copper prices in Changjiang were up by 0.2% at 47,920-48,100 yuan per tonne and the LME/Shanghai copper arbitrage ratio was at 8.09.

In other metals in China, the January iron ore contract on the Dalian Commodity Exchange was up by 0.6% at 499 yuan per tonne. On the SHFE, the January steel rebar contract was up by 2.6%, while the December gold contract was 0.4% higher, while the December silver contract was unchanged.

In wider markets, spot Brent crude oil prices have weakened and were recently quoted at $76.50 per barrel, down by 0.17% this morning. The yield on US 10-year treasuries was weaker at 2.8760%, as was the German 10-year bund yield at 0.3600%.

Asian equity markets were weaker again on Friday as emerging market and US trade concerns persisted: Nikkei (-0.80%), the ASX 200 (-0.27%), Kospi (-0.31%), the Hang Seng (-0.40%) and the CSI 300 (-0.05%). This follows a mixed performance in western markets on Thursday; in the United States, the Dow Jones closed up by 0.08% at 25,995.87, while in Europe the Euro Stoxx 50 closed down by 0.59% at 3,295.95.

The dollar index is drifting after its recent rebound attempt, it was recently quoted at 94.94. With the dollar paused, the pressure on other broader markets has eased. We see key resistance at 95.70 and support at 94.43.

With the dollar easier, most of the other major currencies we follow are firmer: sterling (1.2941), the euro (1.1638), the yen (110.63), although the Australian dollar is weaker at 0.7151.

The yuan is treading water around recent levels and was recently quoted at 6.8359 and most of the emerging market currencies we follow are consolidating after their recent bout of significant weakness.

The economic agenda is busy today, with data already out in Japan and Germany showing a broadly weaker picture – see table below. Data out later includes industrial production, government trade balance and trade balance from France, UK house prices and consumer inflation expectations, Italian retail sales, the European Union’s gross domestic product and the monthly US employment report.

The base metals continue to struggle to hold onto any prices gains so sellers are still capping the upside, but for most of the metals, with the exception of nickel, the lower prices are attracting buying.

The world is anxiously waiting to see if US President Donald Trump follows through with his threat of fresh tariffs on $200 billion worth of Chinese goods now that public comment period has expired. If he does, another period of risk-off is likely to follow.

Overall, we do favor the upside from these levels, but the metals may need to build more of a base while the market waits for a solution to the trade disputes.

Gold prices have followed in the tracks of the base metals and prices are consolidating above recent lows. At these price levels in gold and silver, investors may well see bullion as a relatively cheap haven asset, should they need one. Another round of tariffs may well increase demand for havens.

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