METALS MORNING VIEW 09/04: Slow start to trading as metals prices wait for further clarity

The London Metal Exchange three-month base metals prices are generally subdued this morning, averaging up 0.2% while trading volume is considerably lower at 5,790 lots as of 06:23am London time on Tuesday April 9.

While the United States and China trade negotiations are grinding closer to a positive conclusion, the Trump administration is considering imposing additional tariffs of $11 billion worth goods from the European Union (EU), following from last year's levies on imports of steel and aluminium. Rising escalation between the US and EU could ignite fresh uncertainty and increased downside risks on the global economy.

The strongest performing metal was LME lead, up 0.6% followed by tin with 0.5%. LME copper, nickel and aluminium managed smaller gains of 0.4%, 0.3% and 0.1% respectively while zinc was the only exception, with a decline of 0.6%.

Meanwhile, the precious metals complex was down 0.2% this morning, with platinum and palladium prices down 0.4%. Gold and silver prices remain bid, with gains of 0.1% and was last trading at $1,299 per oz and $15.25 per oz.

Shanghai Futures Exchange base metals prices remained under selling pressure, with the complex down another 0.2% on average. This time, the selling comes from the most-traded May zinc and aluminium contracts, down 1.6% and 0.2% respectively. The rest of their peers only produced mild gains of 0.1% and 0.2% between June nickel and copper contracts and the May tin and lead contracts.

In other metals, the spot copper price in Changjiang was unchanged at 49,320-49,420 yuan per tonne and the LME/Shanghai copper arbitrage ratio rose to 7.67 this morning.

Healthy gains were seen across Shanghai June gold and silver contracts, up 0.2% and 0.5% respectively on Tuesday April 9. The May Iron ore contract traded at Dalian Commodity Exchange (DCE) was last trading at 704 yuan per tonne while the SHFE May rebar contract edged higher to 3,765 yuan per tonne, up from yesterday's 3,694 yuan per tonne.

Brent crude oil prices continued higher and traded briefly above 71.00. Government bond yields continue to recover, with the German 10-year bond yield trading positively at 0.0100, a contrast to the negative 0.0900 seen in March. Also, the US 10-year treasuries bond yield was at 2.5204.

It was a mixed close on the equity front, with US major indexes somewhat higher, with the Dow being the exception after it closed with a decline of 0.32%. Meanwhile, their European counterparts closed negatively and only the FTSE100 bucked the trend with a mild gain of 0.7%. Asian equity indexes small mild gains but with declines in the Topix and the China CSI300, which were down 0.09% and 0.33%. The Nikkei was up 0.19%, the Hang Seng up 0.04% and the ASX200 up just 0.01%. Judging by the early performance in Asian equity indexes, there is a sense that global risk sentiment is borderline positive but remains vulnerable to the downside.

But underpinning risk-on sentiment is the visibly weaker dollar index which was last seen trading below 97.00, a contrast to yesterday's 97.27, down 0.10% so far at the time of writing. The Euro was up (+0.08%) at 1.1265 and the Japanese Yen strengthen to 111.36 (-0.11%) while the Australian dollar edged higher to 0.7141 and the Chinese Yuan was stable at 6.7157.

On the economic front, there are very little market moving releases on Tuesday April 9, with Italian retail sales out later at 09:00am London time, US JOLTs job opening out in the afternoon and the US Fed member Richard Clarida to speak.

Amid the lack of economic data, the LME three-month base metals prices were generally positive. Base metals fundamentals will likely set the tone on directional bias on Tuesday April 9. While the US-China trade rhetoric remains positive, the threat of an escalation with the EU will likely cap any upside momentum in the base metals complex. Still, strong physical order book in the second trading quarter of 2019 needs to transpire soon. Otherwise, there is a downside risks that base metals prices are holding to elevated gains that has poor underlying basis.

Both gold and silver prices managed to edge higher on Monday April 8, with this month's high at $1,303.80 per oz on gold and silver at $15.30 per oz. They are holding up well this morning, although they are struggling to clear higher prices for now. With the weak dollar index and no higher highs on gold and silver prices, there is a heightened risk of a counter-trend reversal. The spot palladium price seems to have found a short-term low at $1,324 per oz and platinum is holding onto gains near $900 per oz.

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