Base metals prices have generally been under pressure in recent days while broad-based risk-off has weighed on the market, but the metals were looking more mixed on the morning of Tuesday September 21, suggesting consolidation after Monday’s average loss of 1.6% across the London Metal Exchange base metals.
The risk-off sentiment seems to be tied in with concerns about whether Chinese property giant Evergrande’s massive debt problems will trigger contagion, especially across China’s construction industry.
Holidays across China, Japan and South Korea in recent days have reduced liquidity in the market – heightening price volatility.
Base metals
Three-month base metals prices on the LME were either little changed or up this morning, with the complex up by an average of 0.3%, led by a 0.6% rise in copper to $9,061 per tonne. During the recent bout of weakness aluminium and tin have been the metals that have held up the best – the two metals that have been suffering actual supply disruptions.
Precious metals
Gold and silver were little changed this morning with spot gold off by 0.1% at $1,761.95 per oz and spot silver unchanged at $22.78 per oz. The platinum group metals were stronger with gains averaging around 1.1%.
Wider markets
The yield on United States 10-year treasuries has edged higher and was recently at 1.32%, up from 1.31% on Monday.
Asia-Pacific equities were mainly weaker this morning: the Nikkei (-1.76%), the Hang Seng (-0.62%), the CSI 300 (closed), the Kospi (closed), while the ASX 200 (+0.51%) was stronger.
Currencies
The US Dollar Index was consolidating this morning and was recently at 93.18, this after a stronger performance at the end of last week which carried over into Monday, with the index setting a high at 93.46, the highest it has been for about a month.
With the dollar stronger, most of the other major currencies were consolidating after recent weakness: sterling (1.3668), the euro (1.1734) and the Australian dollar (0.7267), while the Japanese yen (109.52) was consolidating after recent strength. The yen’s strength ties in with the market being in risk-off mode in recent days.
Key data
Tuesday’s economic agenda contains data on the United Kingdom’s public sector borrowing and the Confederation of British Industry’s industrial order expectations, with US data on building permits, the current account and housing starts. The US Conference Board is also scheduled to release leading indicator data on China.
Tuesday’s key themes and views
We said on September 17 that “we remain bullish for the longer term, but when upward momentum wanes there is always an increased risk of a profit-taking sell-off” and that is what we seem to have seen in recent days, probably prompted by Chinese traders reducing exposure ahead of their two-day holiday in light of potential Evergrande developments.
Generally, in recent months, pullbacks have tended to attract dip-buying and we would not be surprised to see more of the same, especially when Chinese participants return on Wednesday. But we do not want to sound complacent; several of the charts now look weaker so if consumer sentiment has weakened, then it is now more likely to show up in further price weakness. Overall, we still feel the “buy-the-dip” mentality will prevail.
While the stronger dollar, some yen strength and equity, commodity and cryptocurrency weakness suggest a pick-up in risk-off, gold has not been picking up safe-haven buying. Gold seems to be treading water until the Federal Reserve provides its update on Wednesday.