Base metals prices looking weak, vulnerable - stronger dollar a headwind

Base metals prices on the London Metal Exchange were mixed on the morning of Friday November 5, but for the most part they were on a back foot and looking vulnerable.

At the same time, base metals prices on the Shanghai Futures Exchange were mainly weaker while they tracked the weakness on the LME on Thursday, and because weaker coal prices in China are less likely to cause metal producers to cut production.

 

Friday's US employment report likely to set the scene into the weekend. Central banks have not surprised the markets because they have remained dovish.Base metals
Three-month base metals prices on the LME were mixed this morning, but only aluminium was showing any real weakness with its three-month price down by 0.8% at $2,532.50 per tonne. Zinc ($3,234 per tonne) was down by 0.1%, but the rest were up by an average of 0.4%, led by a 0.8% rise in lead ($2,366 per tonne). Lead has been the one metal that has held up the best in recent weeks. Copper was up by 0.6% at $9,468 per tonne.

The most-active base metals contracts on the SHFE were mainly weaker, the exception was the December tin contract that was up by 0.1%, while the rest of the December contracts were down by an average of 2%, although that was skewed by a 5.9% fall in aluminium and a 2.6% fall in zinc. Copper was off by 0.8% at 69,680 yuan ($10,890) per tonne. Aluminium was down because of the rapid fall in coal prices, which should help prevent smelters having to close due to either high energy prices, or due to energy shortages.

Precious metals
The precious metals were stronger across the board this morning with prices up by an average of 0.5%, it would seem that the dovish central bank stance has supported prices. Spot gold was up by 0.3% at $1,792.46 per oz, having put in a 0.8% rise on Thursday.

Wider markets
Bonds rallied after the Bank of England avoided being the first major central bank to raise interest rates. While bonds strengthened, the yield on US 10-year treasuries eased and was recently at 1.54%, compared with 1.59% at a similar time on Thursday.

Despite generally strong US equity indices, Asia-Pacific equities were mainly weaker on Friday morning: the Nikkei (-0.61%), the Hang Seng (-1.21%), CSI 300 (-0.22%) and the Kospi (-0.47%), with the ASX 200 (+0.39%) bucking the trend.

While central banks might have refrained from being more hawkish, it is clear that monetary policy will start to return to a more normal situation in the quarters ahead and that might become an issue for those emerging markets with high US dollar-denominated debt.

Currencies
The US Dollar Index put in a strong performance on Thursday and has held onto those gains on Friday morning. The index was recently at 94.32, compared with 94.09 at a similar time on Thursday and seems to be closing on this year's high at 94.56, set on October 12.

Most of the other major currencies were weaker: the euro (1.1555), the Australian dollar (0.7386), and especially sterling (1.3493), while the Japanese yen (113.66) was stronger.

Key data
Economic data already out showed German industrial production fell by 1.1% month on month in September, after a 3.5% decline in August.

Later there is key data on French industrial production, French private payrolls, Italian retail sales and US data on employment, consumer credit and a Treasury currency report.

In addition, UK Monetary Policy Committee members David Ramsden and Silvana Tenreyro are scheduled to speak.

Friday's key themes and views
Most of the base metals have been under pressure, are looking relatively weak, apart from lead and tin, and most remain vulnerable. Given the significant upside price accelerations most experienced in early October, it is not surprising that some pullback is being seen. The question is whether the upside accelerations were blow-off tops and signal the end of the bull run, or are we just seeing just another correction within the overall upward trend. For now, we expect the latter given the infrastructure spend and the rolling out of electrification.

Gold prices remain rangebound, albeit with an upside bias this morning, which is interesting given the firmer dollar. For now, it does not look as though investors are nervous, so we would expect the upside to be limited for gold.

Uranium volatility after Russia's US export restrictions

Gold stocks rebound on metal bounce and equity rise

Crypto market size continues to catch up with gold

Crypto stealing some of gold's thunder

Gold stocks drop on metal price decline