Base metals look well placed to challenge resistance levels

Most of the base metals continued to be mildly bullish yesterday, October 10, with the complex closing up an average of one percent basis three-month prices, the leader was nickel that was up 3.1 percent at $10,540 per tonne, copper prices closed up 1.1 percent at $4,844 per tonne, while tin prices bucked the trend with a 0.4 percent decline to $20,050 per tonne. Nickel’s price performance suggests it is not too worried about the prospect for Indonesia to review its ban of some low grade nickel ores. Precious metals consolidated yesterday with spot prices up an average of 0.4 percent, with gold prices closing up 0.2 percent at $1,259.65 per ounce.

This morning, the base metals are consolidating, three-month prices are off 0.4 percent on average, led by a one percent decline in zinc – nickel and lead are down 0.5 percent and the rest are off 0.2 percent with copper prices at $4,835 per tonne. Volume has been average with 5,433 lots traded as of 06:38 BST – this compares with an average at a similar time of day last week of 1,384 lots.

Precious metals are mix this morning, spot silver prices are up 0.2 percent at $17.67 per ounce, the rest are weaker – gold prices are last at $1,257.61 per ounce.

In Shanghai, the base metals contracts are for the most part stronger, the exception is zinc that is off 0.9 percent, while the rest are up an average of 1.3 percent, led by a 1.7 percent rise in January nickel. December copper is up 1.1 percent at Rmb 37,980 per tonne, spot copper in up one percent at Rmb 38,090-38,210, the spread between spot and the December futures contract is at an equivalent of $34 per tonne, while the LME/Shanghai copper arb ratio is out at 7.85.

In other metals in China, January iron ore prices are up 3.6 percent on the Dalian Commodity Exchange and on SHFE, steel rebar prices are up 3.2 percent, gold prices are flat and silver prices are up 0.2 percent. In international markets, Brent crude prices are strong at $53.04 per barrel – the strength in oil prices seems to be giving equities a lift.

In equities yesterday the Euro Stoxx 50 climbed 1.2 percent and the Dow closed up 0.5 percent. Asia this morning is mixed, the Nikkei is up 0.9 percent, the Hang Seng is off 1.6 percent, the CSI 300 and ASX 200 are up 0.1 percent, but the Kospi is off 1.2 percent, driven lower by a plunge in Samsung shares.

In FX, the dollar index is on the march higher, last at 97.13 as the market focuses on the likelihood of an interest rate rise in December. Fed Fund rates suggest the chance of a 25 basis point rise in December is now 64 percent, compared with 60 percent yesterday, while the chance of rate staying the same is 30.5 percent after 34.9 percent yesterday. Given the strength of the dollar commodity prices are holding up well, which suggests they have their own factors supporting them.  

Other currencies are generally weaker, the euro is last at 1.1123, the yen is at 103.97, sterling is weak at 1.2315, as is the aussie at 0.7554. In emerging market (EM) currencies, the yuan is approaching the July lows, it is last at 6.7143 and most of the other EM currencies are on a back footing, although the real and rouble are firmer, helped by the stronger oil price.

The economic calendar is fairly light, Japan’s current account surplus was larger than expected helped by the stronger yen that made energy importy cheaper. The country’s economic watchers sentiment eased to 44.8 from 45.6. Later we get ZEW economic sentiment data for Germany and the EU, followed by US small business index and labor market conditions. In addition, UK Monetary Policy Committee member Michael Saunders is speaking  – see table below for more details.

Given the strength of the dollar the bae metals are holding up well and they look set to challenge overhead resistance levels that have been proving difficult to overcome.  Zinc is the one metal looking the weakest, but it may be that its exceptional strength of late is attracting producer selling/profit-taking – its upward trend, however, remains strong. Overall, we remain quietly bullish for the metals.

The precious metals remain weak and vulnerable and the dollar strength is not helping. Given how long the fund longs had become we are not surprised that there has been stale long liquidation and the selling that has generated has hit the prices hard but sentiment may not have changed that much – unless gold bulls have not discounted the likelihood of a rate rise at some stage. With the US election looking less uncertain, safe-haven demand may ease, so it may be that gold prices will consolidate for longer. 

 

Overnight Performance
BST	06:38	+/-	+/- %	Lots
Cu	4835	-9	-0.2%	1898
Al	1688	-3	-0.2%	907
Ni	10490	-50	-0.5%	999
Zn	2310.5	-22.5	-1.0%	1340
Pb	2091.5	-11.5	-0.5%	273
Sn	20010	-40	-0.2%	16
	Average		-0.4%	5,433
Gold	1257.61	-2.04	-0.2%
Silver	17.669	0.039	0.2%
Platinum	958.3	-4.7	-0.5%
Palladium	663.8	-2.2	-0.3%
	Average PM		-0.2%

 

SHFE Prices 06:39 BST	RMB	Change	% Change
Cu	37980	430	1.1%
AL	12660	180	1.4%
Zn	18130	-160	-0.9%
Pb	15800	185	1.2%
Ni	82490	1400	1.7%
Sn	129700	1520	1.2%
Average change (base metals)	0		1.0%
Rebar	2319	72	3.2%
Au	273.25	-0.1	0.0%
Ag	3982	6	0.2%

 

Economic Agenda
BST	Country	Data	Actual	Expected	Previous
12:01am	UK	BRC Retail Sales Monitor y/y	0.4%		-0.9%
12:50am	Japan	Current Account	1.98T	1.54T	1.45T
6:00am	Japan	Economy Watchers Sentiment	44.8	45.9	45.6
10:00am	EU	ZEW Economic Sentiment		6.3	5.4
10:00am	Germany	ZEW Economic Sentiment		4.3	0.5
10:00am	UK	MPC Member Saunders Speaks
11:00am	US	NFIB Small Business Index		95.2	94.4
3:00pm	US	Labor Market Conditions Index m/m			-0.7

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