Base metals prices were mixed on the morning of Wednesday September 29 while they consolidated against a backdrop of numerous headwinds.
Uncertainty has picked up regarding how high US treasury yields and the dollar will go and what will the fallout be if China’s Evergrande starts defaulting on foreign-owned debt.
China’s power rationing set to hit metal production and manufacturing, and in turn supply and demand. But the chip shortage will continue to hit demand for metals while manufacturers struggle.
Base metals
The two main movers on the London Metal Exchange this morning were aluminium and tin with the three-month prices down by 0.7% and 0.8% at $2,911 per tonne and $35,510 per tonne respectively. The rest were little changed, with copper off by 0.1% at $9,246.50 per tonne.
The most-active base metals contracts on the Shanghai Futures Exchange were also mixed and more divergent than those on the LME; November lead was down by 1.5%, November tin was up by 1.4%, November copper was down 1% at 68,530 yuan ($10,609 per tonne), October nickel was down by 0.7%, November aluminium was up by 0.8% and November zinc was down by 0.3%.
Precious metals
Spot gold was up by 0.3% at $1,738.79 per oz and spot silver was down by 0.2% at $22.41 per oz this morning, while the more industrial platinum ($969 per oz) and palladium ($1,900 per oz) were both up by 0.4%.
Wider markets
The yield on US 10-year treasuries has settled down around the 1.51% level, having been as high as 1.55% on Tuesday.
Asia-Pacific equities were mainly weaker on Wednesday morning: the Nikkei (-2.12%), the Hang Seng (+0.57%), the CSI 300 (-0.91%), the ASX 200 (-1.08%) and the Kospi (-1.22%).
Currencies
The US Dollar Index was extending gains this morning and was recently at 93.88, so has cleared the August high at 93.73 – it is now the highest since last November; resistance is now in the 94.30-94.75 area.
The other major currencies were weaker: sterling (1.3506), the Australian dollar (0.7238), the euro (1.1658) and the Japanese yen (111.48).
Key data
Data already out on Wednesday showed Germany’s import prices rose by 1.4% month on month in August, down from a 2.2% gain in July, and Spanish flash consumer prices (CPI) climbed by 4% year on year in September, after a 3.3% gain in August
Later on today there will be data on the United Kingdom’s M4 money supply, mortgage approvals and net lending to individuals as well as US readings on pending home sales and crude oil inventories.
In addition, for the third day running, there is a barrage of central banker speeches from the likes of European Central Bank president Christine Lagarde, Bank of England governor Andrew Bailey, Bank of Japan governor Haruhiko Kuroda, US Federal Reserve chair Jerome Powell and Federal Open Market Committee member Raphael Bostic.
Wednesday’s key themes and views
Supply disruptions are affecting supply and demand, but other layers of uncertainty have started to unfold with higher fuel prices and the potential for tighter monetary policy , which will give markets more to think about. On top of that, China versus non-China relations may sour if Evergrande's foreign-bond holds are treated differently from domestic bond holders.
Given this, we would not be surprised to see more consolidation and possibly some pullback in prices across markets. That said, our medium and long tern views remain bullish on the back of the broad commodity supercycle theme, driven by climate change and electrification.
Gold prices are drifting downward, but higher fuel prices on top of existing inflationary concerns, combined with the possibility of more risk-off, may mean investors view gold as a relatively cheap haven.