METALS MORNING VIEW 08/04: Metal prices enjoy follow-through buying on positive sentiment

Progress in US-China trade negotiations over the weekendhelped push up base metals prices on the London Metal Exchange in early morning trading on Monday April 8.

Further progress on US-China trade negotiations was reported over the weekend by Chinese state media CCTV. The overall tone was positive, with CCTV claiming that both sides are working on a draft to address technology transfers, protection of IP rights and greater focus on trade balance and implementation.

This has supported global risk sentiment at the start of the trading week, with LME three-month base metals prices up an average of 0.5% amid strong trading volume of 7,673 lots as of 06:45am London time.

Particularly strong gains were seen in  the LME copper and nickel contracts, which were both up 0.7%, followed by aluminium which net a 0.5% gain while the zinc and lead contracts were both up 0.4% and tin was up 0.3%.

Following from Friday April 5's close in observance of the tomb-sweeping festival public holiday, base metals prices on the Shanghai Futures Exchange failed to capitalise higher this morning, with the complex down 0.2% on average. The most-traded June nickel and copper contracts were down 0.7% and 0.5% respectively while May tin and lead contracts saw their prices dip 0.1%. Only two metals bucked the trend, with May zinc and aluminium contracts up 0.3% and 0.2% respectively.

Spot copper prices in Changjiang edged lower to 49,340-49,440 yuan per tonne, down 0.3% and the LME/Shanghai copper arbitrage ratio edged higher to 7.61.

Buying pressure emerged and that supported the SHFE June gold and silver contracts on Monday April 8, with the complex up 0.4% on average. The May iron ore contract traded on the Dalian Commodity Exchange (DCE) was up a solid 3.5% and was last trading at 706 yuan per tonne, while the SHFE May rebar contract secured gains of 3.1% and was last trading at 3,694 yuan per tonne.

The Brent crude oil price continued higher and was last trading at 70.69 at the time of writing. Government bond yields have started to stabilize too, with the German 10-year bond yield edging higher and borderline positive again at 0.0051, a contrast to the negative 0.0900 seen in March. Also, the US 10-year treasuries bond yield has staged a mild recovery to 2.4949, up 0.04% this morning. 

Despite the positive close in the US and European equity indexes on Friday April 5, Asian equity indexes were slightly less bullish, with the Topix down 0.35%, the Nikkei down 0.21% and China's CSI300 dipping 0.27%. Only the Hang Seng bucked the trend, up 0.26% on the day. European equity markets are filtering some of the negative vibe at the open, with Germany's Dax down (-0.6%), as were the FTSE (-0.4%) and the CAC40 (-0.2%).

Positive US non-farm payroll data on Friday supported the dollar index and lessen the probability of a rate cut by the US Federal Reserve. It was last trading at 97.27, off 0.13% this morning and allowed other currencies to eke out small gains. The Euro was up (+0.15%) at 1.1229 and Japanese Yen strengthen to 111.44 (-0.26%), while the Australian dollar is holding on to 0.7100 and the Chinese Yuan is somewhat stronger at 6.7156.

On the economic calendar, this morning saw the Japanese current account come in line with expectations at 1.96 trillion yen, while the Japanese consumer confidence reading dipped to 40.5. We will have German trade balance data as well as the European sentix investor confidence number coming out shortly. US factory orders will feature later at 15:00pm London time.

While the positive US-China trade headlines continue to underpin LME three-month base metals prices, we think that a great deal of the bullish vibe has been priced in by now. Further gains will depend on each metal's fundamental backdrop and good physical order book in the second trading quarter of 2019. Also, improved outlook on Chinese apparent demand for industrial metals and economic data points will have greater influence on risk sentiment. For now, we expect LME base metals prices to keep their early gains but may have to work hard from giving back too much as sellers look for another opportunity to sell.

In the precious metals segment, platinum continues to outperform its peers, with solid gains this morning thanks to follow-through buying pressure. Short-covering rally among Nymex speculators has driven prices higher too. Meanwhile, sister-metal palladium is seeing reduced selling pressure but there is no real upside momentum just yet. Gold and silver prices are doing much better this morning at $1,297.50 per oz and $15.14 per oz after last week's run lower to test key technical support levels at $1,280.80 per oz and $14.88 per oz respectively.

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