Dollar strength weighing on metals prices

The base metals continued their correction/consolidation yesterday, November 17, but there are some signs of dip buying. The precious metals for the most part fell, but palladium continued to buck the trend with a 1.4% gain, the rest were down by an average of 1.4%.

This morning the base metals prices are for the most part weaker, prices are down an average of 0.4 percent, with losses of between 0.3% and 0.6%, the exception is zinc that is up 0.1 percent. Three-month copper prices are off 0.4% at $5,454 per tonne. Volume remains above average, with 9,259 lots traded as of 07:05 GMT, although it is well below last week’s average of 21,180 lots.

Spot precious metals prices are off an average of 0.3% this morning, ranged between being down 0.2% for silver and 0.5% down for gold, at $1,209.50 per oz.

In Shanghai, the January base metals prices are polarised with aluminium prices up 1.5%, copper prices are up 0.9% and zinc prices are up 0.2%, while tin is down 1.5% and lead and nickel are down 0.9%. Copper prices are at Rmb 44,270 per tonne. Spot copper in Changjiang is up 0.5 percent at Rmb 43,820-44,020 per tonne, the spread has swung into a contango  equivalent of $36 per tonne, while the LME/Shanghai copper arb ratio has widened even further to 1:8.12, which should mean the arb window is open for some trading.

In other metals in China, January iron ore prices continue to correct, they dropped 2.2% on the Dalian Commodity Exchange, on SHFE steel rebar is up 0.4 percent and gold and silver are down around 1.2%. In international markets spot Brent crude oil prices are up 0.1% at $46.04 per barrel.

Equities were upbeat yesterday with the Euro Stoxx 50 closing up 0.5% and the Dow closed up 0.2%. This morning, most markets are upbeat with the Nikkei up 0.6%, the Hang Seng is up 0.5%, the ASX 200 is up 0.4%, while the Kospi is down 0.3% and the CSI 300 is down 0.6%.

In FX, the dollar index continued to soar, recently quoted at 101.30 – the highest since April 2003. The euro is weak at 1.0595, sterling is drifting at 1.2390, the yen is at 110.86 and the aussie has collapsed to 0.7380. The yuan continues to fall, recently quoted at 6.8969, the rupee has dropped to 68.105 and other emerging market currencies are showing weakness too. As a barometer, the strength in the dollar and weakness in currencies suggests some major trend changes – other markets do not seem to be reacting too much yet.

On the economic agenda, German PPI climbed 0.7%, data out later includes EU current account and US leading indicators. There are a host of central bankers speaking – starting off with ECB President Mario Draghi, followed by UK MPC member Ben Broadbent and then FOMC members James Bullard, William Dudley and Esther George – see table below for more details.

The corrections in the base metals are generally continuing, but dips do seem to be attracting some buying, but whether the buying is strong enough to chase prices higher again remains to be seen. Given the strength in recent weeks we would not be surprised if the metals need to consolidate for a while before the underlying bullish sentiment is ready to carry prices higher again. Also the stronger dollar is likely to be acting as a strong headwind.

Apart from palladium, which has been rallying strongly, the other precious metals have continued to head lower as the strength of the dollar has weighed on prices. Given the dollar strength this is not so surprising. What is surprising is that gold prices are not getting more support from all the uncertainty that a Trump presidency brings with it, but that may be a secondary reaction once this down wave has run its course.  

 

 

Overnight Performance
GMT	07:05	+/-	+/- %	Lots
Cu	5454	-22.5	-0.4%	3693
Al	1688.5	-5.5	-0.3%	1358
Ni	11125	-70	-0.6%	1321
Zn	2534	2	0.1%	2646
Pb	2163.5	-14	-0.6%	201
Sn	20085	-125	-0.6%	40
	Average		-0.4%	9,259
Gold	1209.49	-5.51	-0.5%
Silver	16.629	-0.036	-0.2%
Platinum	926.6	-2.4	-0.3%
Palladium	720.5	-2.5	-0.3%
	Average PM		-0.3%

 

SHFE Prices 07:05 GMT	RMB	Change	% Change
Cu	44270	380	0.9%
AL	13640	195	1.5%
Zn	20830	35	0.2%
Pb	17765	-170	-0.9%
Ni	90770	-780	-0.9%
Sn	140300	-2200	-1.5%
Average change (base metals)	0		-0.1%
Rebar	2774	-11	-0.4%
Au	273.55	-3.3	-1.2%
Ag	4102	-46	-1.1%

 

Economic Agenda
GMT	Country	Data	Actual	Expected	Previous
7:00am	Germany	PPI m/m	0.7%	0.2%	-0.2%
8:30am	EU	ECB President Draghi Speaks
9:00am	EU	Current Account		31.3B	29.7B
9:10am	UK	MPC Member Broadbent Speaks
10:30am	Germany	Buba President Weidmann Speaks
10:30am	US	FOMC Member Bullard Speaks
2:30pm	US	FOMC Member Dudley Speaks
2:30pm	US	FOMC Member George Speaks
3:00pm	US	CB Leading Index m/m		0.1%	0.2%

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