Base metals on the London Metal Exchange were up across the board on the morning of Friday March 11, albeit with nickel on the LME still suspended.
On the Shanghai Futures Exchange most of the metals were stronger, although August nickel was down by 9.6%. On balance, the metals seem to be taking a timeout after all the recent gyrations.
• US CPI rises 7.9% in February, compared with February 2021, the fastest increase for 40 years
• Core US CPI, excluding food and energy, is up by 6.4%
Base metals
Three-month base metal prices on the LME – with the exception of nickel, of course – were up by an average of 1.4%, led by a 2.2% rise in aluminium ($3,476 per tonne), and copper was up by 1.2% at $10,250 per tonne. Although the metals, excluding nickel, were up this morning, they were down by an average of 13.2% from their highs seen earlier in the week.
We think this highlights numerous factors: 1) the higher prices earlier in the week reflected the market's reaction to the distressed short-covering in nickel –but the contagion has been a short-lived, knee-jerk reaction; 2) the run-up in energy prices now threatens to bring on a recession, at least in Europe, which will be bad for base metal prices; and 3) the market seems to be regarding the boycott of Russian metals as more of a supply disruption than a total loss of supply – suggesting Russian metal will find other ways into the market.
We have thought that the run-up in LME nickel prices would turn out to be an upward spike, and judging by what nickel prices are doing on the SHFE, this might be the case. The August contract was down by 9.6% this morning, at 195,610 yuan ($30,938) per tonne. This came after a peak of 254,820 yuan per tonne on Tuesday when the market hit limit up. The rest of the most actively traded base metal contracts were up by an average of 0.5%.
Precious metals
Precious metals were mainly little changed, with spot gold off by 0.3% at $1,990.03 per oz. The exception was palladium, which was up by 1.9% at $2,964 per oz – but this, too, was a 13.6% drop from Monday’s high.
Wider markets
The United States 10-year treasury yield has rebounded to 1.98%, up from a low on Monday of around 1.69%, suggesting a significant easing in risk-off sentiment as the market refocuses on US inflation (CPI) data.
Asia-Pacific equities were mainly weaker on Friday: the Hang Seng (-1.61%), the Nikkei (-2.05%), the Kospi (-0.71%) and the ASX 200 (-0.94%) were all down. But China’s CSI 300 (+0.32%) bucked the trend.
Currencies
The US Dollar Index was rising again this morning and was recently at 98.77, compared with Thursday’s low of 97.70 and Monday’s high of 99.42.
The other major currencies are mixed. The euro (1.0969) is oscillating in low ground, the Australian dollar (0.7333) is relatively strong, and sterling (1.3060) and the Japanese yen (116.89) are weakening.
Key data
Economic data out already on Friday showed the German final consumer price index (CPI) rose by 0.9% in February compared with January. In the United Kingdom, construction output, gross domestic production, the index of services, industrial and manufacturing production, and the goods trade balance all beat expectations. But the Chinese M2 money supply and new loans disappointed – see the table below.
Later, data is due on the Italian quarterly unemployment rate as well as US consumer sentiment and inflation expectations from the University of Michigan
Friday’s key themes and views
Base metals seem to be treading water after a confusing week, raising a lot of concern and uncertainty about the workings of the LME. This has come at a time when geopolitical developments have sent commodity prices (especially energy prices) to extraordinary highs, sparking fears of recession. The soaring prices will also fuel already significant inflationary pressures – so concerns about stagflation have picked-up. The pullback in commodity prices may also be starting to discount fears about recession. But, all in all, we would suggest not reading too much into the ups and downs in prices this week – we think there have been a lot of knee-jerk reactions and counter reactions. It would probably be best to wait for the dust to settle now.
The combination of increased inflationary pressure on the back of higher commodity prices, heightened concern over where the Russian-Ukraine war is heading, and the likelihood that higher energy prices could tip economies into a recession and therefore prevent, delay, or limit, central banks from tightening monetary policy are underpinning the upward trend in gold.