Under the cloud of the continuing US/China trade dispute, which has no end in sight and is weighing on global economic activity, market sentiment is subdued. But numerous events are buffeting prices - with nickel supported by short-covering and fresh buying against concerns about present and future supplies, while copper mine supplies may be affected by strikes at ports in Peru. Zinc and tin, remain weak, with increased zinc supplies and poor demand from the automotive and semiconductor industries affecting zinc and tin respectively.
Equities are consolidating this morning in Asia, but generally have a dilemma: should they be buoyant due to easier monetary policy, or concerned by state of global economy? Some investors are hedging their bets by buying into gold, the yen and government bonds.
Base metals
On the London Metal Exchange, three-month base metals prices were mixed this morning, Monday August 12. Nickel was down 2.6% at $15,250 per tonne, after last Thursday’s high of $16,690, but with an average price of $12,313 in the second quarter. We said in Thursday’s Morning View report that the run up “looks like a blow-off top as stops were hit” and that seems to be the case, but with pockets of buying into the correction, there may be more short-covering to be done.
Copper prices were recently quoted at $5,762.50 per tonne, so were continuing their rebound off last week’s low at $5,640 and have been helped by Glencore's announced cut and the Peruvian port strike; aluminium and lead are looking buoyant, while tin and zinc remain in low ground.
Volume has again been massive for nickel with 6,479 lots traded, compared with 1,411 lots of copper, as of 7.09am London time
In China, base metals prices on the Shanghai Futures Exchange were also mixed, with October nickel leading on the downside with a 4.2% drop, September tin was down by 1.6%, with October zinc down by 0.8%, while October aluminium was up by 1%, September lead was up by 0.5% and October copper was up by 0.1% at 46,670 yuan ($6,605) per tonne.
Spot copper prices in Changjiang were down by 20 yuan per tonne at 46,480-46,600 yuan per tonne and the LME/Shanghai copper arbitrage ratio was firmer at 8.09.
Precious metals
Spot gold was starting to correct with prices recently quoted at $1,492.87 per oz after a recent high of $1,510.30. Silver is following suit and was recently quoted at $16.83, after a high of $17.24 per oz on Wednesday, while the platinum group metals continue to consolidate.
On the SHFE, the December gold contract was little changed, while the December silver contract was down by 0.5%.
Wider markets
The spot Brent crude oil price is rebounding and was recently quoted at $58.35 per barrel, this after last week’s low of $55.86, so bargain-hunting does seem to be unfolding. The overall weakness though, is a sure sign that economic woes have overtaken the geopolitical standoff in over Iran.
The yield on benchmark US 10-year treasuries is off the lows, it was recently quoted at 1.7230% having been below 1.7000% last week. The German 10-year bund yield is holding down in low ground - it was recently at -0.5800%.
In equities, Asian indices were up: Nikkei (closed), Hang Seng (+0.03%), Kospi (+0.23%), the CSI 300 (+1.31%) and the ASX200 (+0.09%).
This follows a weak performance in Western markets on Friday: in the United States the Dow Jones Industrial Average closed down by 0.34% at 26,287.44 and in Europe the Euro Stoxx50 closed down by 1.2% at 3,333.74.
Currencies
The dollar index is consolidating and was recently quoted at 97.70 - the recent range being 97.21 -98.94. The yen (105.47) is consolidating in high ground, the euro (1.1170) is weakening again after its recent rebound off lows, sterling (1.2064) is holding in low ground and the Australian dollar (0.6774) is consolidating off recent lows.
The yuan continues to weaken and was recently at 7.0651, which will be winding up the US administration.
Key data
Today’s data includes US Federal budget balance, but with the recent two-year budget deal raising the debt ceiling, the US government will be able to continuing spending and avoid government shutdowns.
Today’s key themes and views
Gold’s strength is a warning that all is not good in the global economy, but with some of the base metals and equities seeing some lift, it does look as though the markets have already reacted to the present negative state of affairs and investors are being tempted to do some bargain hunting.
Overall we expect choppy sideways trading, but it will be difficult to get bullish unless a trade deals is in the offering, or there are more supply disruptions.
William AdamsFastmarkets