MORNING VIEW: LME base metals prices consolidate after Thursday's show of strength

The flip-flip nature of headlines surrounding trade talks between China and the United States is calling the tune in the markets; there was initial weakness on news that a signing of a partial trade deal would be delayed, but markets then turned higher after it was announced that progress had been made with both sides agreeing to remove some tariffs.

This morning, Friday November 8, markets are giving back some of the ground gained on Thursday while prices consolidate.

Risk assets firmer on optimism about a trade deal.Haven assets under pressure while broader markets see risk-on.
Base metals
Three-month base metals prices on the London Metal Exchange were for the most part weaker this morning, with prices down by an average of 0.1%, but this is after average gains of 0.6% on Thursday.

Copper was down by 0.7% at $5,960 per tonne in the early session on Friday, but it led the advance on Thursday with a 2% gain that took prices to a high of $6,011 per tonne. The rest of the LME base metals were mixed but little changed this morning compared with Thursday's close, and volume has been light with 2,564 lots traded as at 5.27am London time.

In China, the most-traded base metals contracts on the Shanghai Futures Exchange were for the most part little changed, with December aluminium leading on the upside with a 0.7% gain and December copper was up by 0.3% at 47,430 yuan ($6,785) per tonne.

The spot copper price in Changjiang was up by 0.5% at 47,250-47,350 yuan per tonne and the LME/Shanghai copper arbitrage ratio was weaker at 7.96, compared with 8 at a similar time on Thursday, this suggesting Chinese copper prices have not been buoyed as much as LME copper prices.

Precious metals
Spot gold prices fell on Thursday after the risk-on returned to other markets, with prices reaching a low of $1,460.78 per oz. They were recently quoted at $1,468.88. Key support is the low from October 1 at $1,459.18 per oz.

Silver prices are off by 0.5% this morning at $17 per oz, platinum prices are weaker at $906.20 per oz, while palladium prices are holding up in high ground at $1,797.30 per oz.

Wider markets
Spot Brent crude oil prices were weaker this morning, with prices down by 0.5% from Thursday's close and recently quoted at $62.06 per barrel. Prices did set a fresh one-and-a-half month high at $63.26 per barrel on Thursday.

While haven assets have lost ground, the yield on benchmark US 10-year treasuries has strengthened. It was recently quoted at 1.9023%, compared with around 1.8100% at a similar time on Thursday morning. The German 10-year bund yield was climbed, it was recently quoted at -0.2472%, compared with -0.3339% at a similar time on Thursday.

Asian equities were mixed this morning: China's CSI 300 (-0.12%), the Nikkei (+0.26%), the Hang Seng (-0.58%), the Kospi -0.26%) and the ASX 200 (-0.04%).

This follows a stronger performance in Western markets on Thursday, where in the US, the Dow Jones Industrial Average closed up by 0.66% at 27,674.80; in Europe, the Euro Stoxx50 closed up by 0.49% at 3,706.68.

Currencies
The dollar index is firmer and has broken higher out of its recent consolidation range - it was recently quoted at 98.14. This consolidation has been seen after the index fell from the October 1 high at 99.67 to mid-October low at 97.12, so a rebound is now underway.

The other major currencies we follow are either weaker due to the stronger dollar: the euro (1.1051), sterling (1.2808) and the yen (109.26), or in the case of the Australian dollar (0.6880) consolidating, which is probably due to the stronger commodity prices.

Key data
Data already out on Friday shows China's trade surplus expanded after the country's exports contracted less than expected, while imports remained weak. Later there is data on France's and Germany's trade balances, French industrial production and private payroll. US data includes University of Michigan consumer sentiment and inflation expectations and wholesale inventories.

There are also Eurofin meetings and US Federal Open Market Committee members John William and Lael Brainard are speaking.

Today's key themes and views
The fact copper prices set fresh multi-month highs on Thursday and aluminium and zinc have generally been showing strength, suggests there is buying interest around, which we tie into the latest developments in US-China trade negotiations. Lead prices had been one of the strongest performers since the summer, but as a result of that and with a weaker outlook for 2020, prices are now correcting, but the correction may just be a pause in the uptrend given the market is in a deficit for now.

Nickel and tin are trading their own situations more, with nickel seeing a pick-up in volatility as it is buffeted by the crosswinds affecting it - mainly developing tightness on the LME as stocks fall, while the broader physical market remains well supplied. Tin is also weak and we see that mainly due to soft demand with the semiconductor industry suffering at a macro level. A trade deal may, therefore, give tin a boost.

Gold prices have broken support around the $1,480-per-oz level and with risk-on being seen in broader markets, the correction may have further to run. Rebounds are, however, likely should trade talks run into trouble.

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