Base metals prices on the LME and SHFE were mixed - albeit with a slight upward bias - this morning, Wednesday May 26. But the rebounds seem half-hearted, with some erring on the side of caution judging by the lower treasury yields and stronger gold price.
* While the United States Federal Reserve generally seems to be remaining dovish, the vice chair, Richard Clarida, spoke of a “soft landing”...
* ...But does that not sound like putting the brakes on? The Fed will have to be very careful with its choreography going forward if it is to avoid rattling the markets.
Base metals
London Metal Exchange three-month base metals prices were mainly firmer this morning in quiet trading conditions, with only 2,814 lots traded by 5.50am London time, compared with 5,231 lots and 13,606 lots at similar times on Tuesday and Monday respectively.
Aluminium ($2,379.50 per tonne) bucked the trend with a 0.3% loss, but the rest of the base metals were up by an average of 0.4% - although that was skewed by a 1.2% rise in nickel ($17,275 per tonne). Copper was up by 0.3% at $9,966 per tonne.
The most-active Shanghai Futures Exchange base metals contracts were mixed; the July copper and aluminium contracts were down by 0.7% and 0.5% respectively, with copper at 71,840 yuan ($11,234) per tonne, while the rest were up by an average of 0.5%.
Precious metals
Precious metals were up across the board on Wednesday, led by the platinum group metals with platinum ($1,209.90 per oz) and palladium ($2,801.90 per oz) up by 1.2% and 1.3% respectively, while silver ($28.20 per oz) and gold ($1,906.38 per oz) were up by 0.4% and 0.8% respectively. Gold is at its highest level since early January.
Wider markets
The yield on US 10-year treasuries has slipped again and was recently quoted at 1.58%, down from 1.6% at a similar time on Tuesday.
Asia-Pacific equities were mainly firmer on Wednesday: the Nikkei (+0.41%), the CSI 300 (+0.14%), the Hang Seng (+0.86%) and the Kospi (+0.03), the exception was the ASX 200 (-0.11%).
Currencies
The US Dollar Index extended lower on Tuesday to set a multi-month low of 89.53 and is currently consolidating in low ground at around 89.63 this morning.
With the dollar slightly weaker, most of the other major currencies were consolidating: sterling (1.4154), the Australian dollar (0.7785) and the yen (108.83), although the euro (1.2255) was edging higher. But, China’s yuan has broken through resistance at 6.4140 and was recently at 6.3959 – it has not been below 6.4000 since June 2018.
Key data
Wednesday’s economic agenda is light, data already out showed Japan’s services producer price index rose by 1% in April, after a 0.7% rise in March. This was the second consecutive month of gains, after five months of falling prices. US crude oil inventory data is out later.
In addition, Federal Open Market Committee (FOMC) member Randal Quarles is scheduled to speak twice today.
Today’s key themes and views
After the recent declines that have averaged 7.8% from the highs seen in May, the base metals are consolidating, with some - notably lead, nickel and zinc - getting more of a lift than others. Indeed, copper seems to be struggling to get back and hold above $10,000 per tonne. As we said on Tuesday while prices are getting some lift, it is still too early to say the correction is over, even though it is tempting to do so.
If the pullback is over, then once again it will tell us that underlying sentiment is robust. But the metals have had a very strong run over the past year, so a deeper pullback would not be surprising, hence we would remain cautious for a while longer. We remain long-term bullish though.
The fact there are some signs of increased haven demand, with gold prices rising and US treasury yields falling, also suggests there is some caution around.