Base metals are experiencing strong gains again on the morning of Wednesday May 5 with relatively high volumes being traded on the London Metal Exchange despite the absence of Chinese market participants observing a Labor Day break.
* Asian markets quiet with China, Japan and South Korea on holiday
* US Dollar Index recently at 91.24, compared with 91.16 at a similar time on Tuesday - consolidating off last week's low of 90.42
Base metals
Three-month nickel prices on the LME led the gains this morning, with prices up by 1.8%, at $17,960 per tonne. But nickel is still playing catch-up with other base metals since it is the only metal not extending its highs yet. On Tuesday, lead ($2,190.50 per tonne) joined the other metals in setting a new multi-month high of $2,201 per tonne - the highest it has been since October 2019. Copper was up by 0.87%, at $10,037 per tonne - its highest since February 2011, when it hit a record high of $10,190.
At 5.51am London time, a total of 4,159 lots had been traded on the LME, compared with 2,368 lots at a similar time on Tuesday.
Precious metals
Spot prices for gold and silver are little changed this morning at $1,778.01 per oz and $26.41 per oz respectively, while platinum and palladium were both up by 0.4% at $1,234.50 per oz and $3,002 per oz.
Wider markets
The yield on US 10-year treasuries has edged back to 1.59%, compared with 1.61% at a similar time on Tuesday.
The Asia-Pacific equities that were open were mixed on Wednesday: the ASX 200 was up (+0.39%) and the Hang Seng was down (-0.56%). There was some divergence in US equities on Tuesday, with the Dow Jones Industrial Average closing up by 0.06%, at 34,133.03, while the Nasdaq closed down by 1.88%, at 13,633.50, and the S&P 500 closed down by 0.67%, at 4,164.66.
Currencies
The US Dollar Index’s downward trend halted on April 29. Since then, the index has been getting some lift. At 91.24, it is now near the middle of this year’s range of 89.21-93.44.
With the dollar off its lows, the other major currencies were generally consolidating off recent highs: the euro (1.2015), sterling (1.3895), the Australian dollar (0.7721) and the yen (109.34).
Key data
Wednesday’s economic agenda is busy and is mainly focused on services purchasing managers’ index (PMI) data out across Europe and the United States.
There is also data on Spain’s unemployment change, European Union economic forecasts, EU producer prices (PPI), and US data on ADP non-farm employment change and crude oil inventories.
In addition, Federal Open Market Committee member Charles Evans is speaking twice.
Wednesday’s key themes and views
The show of strength in the LME base metals continues and our view remains the same; we see the path of least resistance remaining to the upside, but at these levels, a correction can never be ruled out. We expect the catalyst for that would be a correction in the equity markets.
US Treasury Secretary Janet Yellen’s comments on Tuesday on higher interest rates may have caused some pullback in tech stocks, but with the Federal Reserve sticking to its rhetoric that it is in no hurry to raise rates, the market may well stick by the Fed. US treasury yields did not rally on Tuesday, gold remains capped and the yen is weakening - all suggesting calm for now.
Palladium prices are trending higher with a new record high at $3,025 per oz set on Tuesday. The rest of the precious metals are consolidating this morning, albeit within their general uptrends. Given all the stimulus and how the expected infrastructure spending could boost commodity prices, it is not surprising inflation expectations are on the rise. This, combined with stretched valuations in other markets, may well, before too long, see some rotation into havens.