Rallies in metals prices pause as dollar firms

Jan 6, 2017 - 7:37 AM GMT
by

The base metals prices are for the most part drifting lower this morning January 6, with three-month prices down an average of 0.2%, led by 0.6% falls in nickel and zinc prices, lead prices are off 0.2%, copper and aluminium are little changed with copper prices at $5,581 per tonne, while tin is the only metal to buck the trend with a 0.3% gain to $21,100 per tonne. Precious metals this morning are mainly weaker, with silver prices off 1.3%, platinum prices are off 0.9% and gold prices are down 0.4% at $1,176.42 per oz for spot gold, while palladium is up 0.5% at $741.80 per oz.

Today’s weakness follows on from a mixed performance on January 5 that saw initial strength fade for most of the metals – aluminium and nickel managed to hold on to some gains, they closed up 0.6% and 0.3% respectively, while there rest closed down between 0.5% for tin prices and 1.8% for lead prices, with copper prices closing off 0.9% at $5,582.50 per tonne.

In Shanghai this morning, January 6, the metals are mainly lower, led by a 1.4% drop in copper to Rmb 45,230 per tonne. Aluminium, zinc and nickel prices are off between 0.9 and 0.2%, while lead prices are up 0.5% and tin prices are up 0.6%. Spot copper in Changjiang is off 0.9% at Rmb 45,190-45,290 per tonne, the spread has swung back into a backwardation equivalent to around $9 per tonne, while the LME/Shanghai copper arb ratio is around 8.1.

In other metals in China, May iron ore prices on the Dalian Commodity Exchange are down 1.5%, on SHFE, steel rebar prices are off 0.9%, gold prices are little changed and silver prices are off 0.5%. In international markets, spot Brent crude oil prices are off 0.2% at $56.73.

Equities were slightly weaker yesterday January 5, with the Euro Stoxx 50 little change while the Dow closed down 0.2% – the 20,000 level remains elusive, yesterday’s high was 19,948.60,  the all-time high so far being 19,987.63. This morning, January 6 equities in Asia are mixed with the Nikkei off 0.3%, the Hang Seng is up 0.2%, the CSI 300 is down 0.4%, the ASX 200 is little changed and the Kospi is up 0.4%.

In FX the dollar index dropped to a fresh multi-week low of 101.30, it is slightly firmer this morning at 101.73, the euro’s rebound has paused around 1.0578, as has sterling at 1.2380, the yen at 116.19 and the aussie at 0.7318. In emerging market (EM) currencies, the yuan is giving back some of yesterday’s gains, it was recently quoted around 6.8350, having climbed to 6.7803 yesterday. The weakness seems to be on the back of the PBoC not raising the daily reference rate as much as expected, although it should be noted that it is making efforts to support the currency. Other EM currencies are looking mixed as they watch the dollar.

The economic agenda will be focused on the US employment report – ahead of that there has been data on Japan’s average cash earning that climbed 0.2%, Germany’s factory orders dropped 2.5% and retail sales fell 1.8%, both pieces of German data were worse than expected. Data out later includes French trade balance, EU retail sales, with additional US data showing the trade balance and factory orders. FOMC member Charles Evans is also speaking at 5:15pm GMT – see table below for more details.

The start of year rallies in the base metals are not one-way bets, there appears to be some hesitation and resistance into the strength and the rallies could still just be counter trend moves. The weaker dollar in recent days seems to have supported the upside, but this morning’s rebound in the dollar seems to be unnerving market confidence. We should expect increased volatility as the markets face a lot of uncertainty in the weeks and months ahead whether it be about what lies ahead as president-elect Donald Trump takes the helm, what is driving the weaker yuan and, further down the road, what fallout will Brexit bring about.

Gold prices have been rallying well in recent weeks and in recent days the weaker dollar has helped, but the halt in the dollar’s pullback this morning seems to have applied the brakes to gold’s rally and the rest of the precious metals have followed.  We expect dips to be well supported as we expect a pick-up in safe-haven buying in the weeks ahead.

 

Overnight Performance
GMT 06:40 +/- +/- % Lots
Cu 5581 -1.5 0.0% 1620
Al 1698 -0.5 0.0% 476
Ni 10180 -65 -0.6% 1039
Zn 2590.5 -16.5 -0.6% 1748
Pb 2038 -3.5 -0.2% 231
Sn 21100 70 0.3% 13
  Average   -0.2%         5,127
Gold 1176.42 -4.43 -0.4%  
Silver 16.393 -0.212 -1.3%  
Platinum 959 -9 -0.9%  
Palladium 741.8 3.8 0.5%  
  Average PM   -0.5%  

 

SHFE Prices 06:40 GMT RMB Change % Change
Cu 45230 -620 -1.4%
AL  12560 -90 -0.7%
Zn 21240 -190 -0.9%
Pb 17945 95 0.5%
Ni 85210 -200 -0.2%
Sn 152320 950 0.6%
Average change (base metals) 0   -0.3%
Rebar 2926 -27 -0.9%
Iron ore 540 -8.5 -1.5%
Au 269.2 0 0.0%
Ag 4105 -21 -0.5%

 

Economic Agenda
GMT Country Data Actual Expected Previous
12:00am Japan
Average Cash Earnings y/y
0.2% 0.2% 0.1%
7:00am Germany
German Factory Orders m/m
-2.5% -2.3% 5.0%
7:00am Germany
German Retail Sales m/m
-1.8% -0.8% 2.5%
 7:45am France
French Trade Balance
  -4.8B -5.2B
10:00am EU 
Retail Sales m/m
  -0.4% 1.1%
1:30pm US 
Average Hourly Earnings m/m
  0.3% -0.1%
1:30pm US 
Non-Farm Employment Change
  178K 178K
1:30pm US 
Unemployment Rate
  4.7% 4.6%
1:30pm US 
Trade Balance
  -42.2B -42.6B
3:00pm US 
Factory Orders m/m
  -2.1% 2.7%
5:15pm US 
FOMC Member Evans Speaks