Metals sell-off as traders take advantage of recent gains

After some volatility and mixed trading yesterday, November 14  that saw three-month tin prices drop 3%, while zinc prices rallied 5.8% and copper prices were little changed, this morning is seen more concerted weakness. The base metals are down 2% on average on high volume of 24,514 lots, as of 06:52 GMT. Copper prices are leading the decline with a 3.3% retreat, nickel and zinc prices are down around 2.1%, lead and tin prices are off 1.7% and aluminium prices are off 0.9%.

The spot precious metals prices were also mixed yesterday with palladium prices up 3.6%, silver prices were down 2.3%, gold prices closed off 0.3% at $1,223.90 per oz and platinum prices were off 0.4 %. This morning, palladium prices are off 0.4%, the rest are stronger with platinum prices up 0.9%, silver prices are up 0.4% and gold prices are up 0.2% at $1,226.60 per oz.

In Shanghai, the January base metals are mixed this morning with nickel, copper and tin down between 3 to 3.6%, with copper prices at Rmb 44,080 per tonne, aluminium prices are down 2.7%, while lead and zinc prices are bucking the trend with gains of 1.7% and 1.2% respectively. Spot copper in Changjiang is off 0.5% at Rmb 45,960-46,160 per tonne, the backwardation has flared out to an equivalent of $300 per tonne, as continued selling on the futures opened up the gap. The LME/Shanghai copper arb ratio is at 1:8.18, meaning the LME arb window is open.

In other metals in China, January iron ore prices are down 5.9%, on SHFE steel rebar is off 6%, silver prices are off 3.9% and gold prices are up 0.3%. In international markets, spot Brent crude prices are up 0.9% at $45.10 per barrel.

Equities were slightly firmer on Monday, November 14, with the Euro Stoxx 50 closing up 0.3% and the Dow closed up 0.1%, but Asia this morning is mixed with the Nikkei and CSI 300 little changed, the Hang Seng is up 0.4% and the Kospi and ASX 200 are down 0.4%.

In FX, the dollar index is consolidating recent gains, yesterday the dollar index shot up to 100.22, it was recently quoted at 99.72, the euro fell to 1.0709 yesterday, it was recently quoted at 1.0776, the aussie is at 0.7558,  sterling is steady at 1.2491 and the yen is weaker at 107.90. The yuan continues to fall, it was recently quoted at 6.8610 and most of the other emerging market currencies we follow have become more volatile and are generally weaker, which does suggest the markets are increasingly nervous.

The economic agenda is busy, German preliminary GDP eased to 0.2 percent, data out later includes French CPI, Italian GDP, a host of UK price data, EU GDP, German and EU ZEW economic sentiment, with US data including: retail sales, empire state manufacturing index, import prices and business inventories. In addition, FOMC members Daniel Tarullo and Stanley Fischer are speaking – see table below for more details.

The run up in metals prices last week after the US election result was unsustainable so it is not surprising that we are seeing a counter move now – we should get a feel for how bullish underlying sentiment is by seeing how well supported the pullbacks are. Metals prices were generally running higher ahead of LME week, they continued to push higher during LME week (which was a bullish sign) and then were ramped up last week. For now we think the markets are consolidating last week gains but generally sentiment remains bullish.

Gold prices have sold off in the face of a show of risk-on in other markets, as well as on the back of the strength in the dollar. Given there is probably even more uncertainty now than before the US election, we would expect gold prices to find robust underlying support.  We would also expect the more industrial precious metals to also do well in this environment.

Overnight Performance
GMT	06:52	+/-	+/- %	Lots
Cu	5379	-185.5	-3.3%	10741
Al	1718.5	-16	-0.9%	3184
Ni	11100	-255	-2.2%	3091
Zn	2569	-55.5	-2.1%	6291
Pb	2170	-38	-1.7%	1067
Sn	20480	-355	-1.7%	140
	Average		-2.0%	24,514
Gold	1226.63	2.73	0.2%
Silver	17.006	0.066	0.4%
Platinum	941.8	8.8	0.9%
Palladium	693	-3	-0.4%
	Average PM		0.3%

 

SHFE Prices 06:53 GMT	RMB	Change	% Change
Cu	44080	-1550	-3.4%
AL	13840	-380	-2.7%
Zn	21095	245	1.2%
Pb	17835	300	1.7%
Ni	90200	-2830	-3.0%
Sn	143500	-5290	-3.6%
Average change (base metals)	0		-1.6%
Rebar	2858	-183	-6.0%
Au	275.9	0.7	0.3%
Ag	4126	-169	-3.9%

 

Economic Agenda
GMT	Country	Data	Actual	Expected	Previous
7:00am	Germany	Prelim GDP q/q	0.2%	0.3%	0.4%
7:45am	France	Final CPI m/m		0.0%	0.2%
9:00am	Italy	ItalyPrelim GDP q/q		0.2%	0.0%
9:30am	UK	CPI y/y		1.1%	1.0%
9:30am	UK	PPI Input m/m		1.6%	0.0%
9:30am	UK	RPI y/y		2.2%	2.0%
9:30am	UK	Core CPI y/y		1.4%	1.5%
9:30am	UK	HPI y/y		8.1%	8.4%
9:30am	UK	PPI Output m/m		0.3%	0.2%
10:00am	EU	Flash GDP q/q		0.3%	0.3%
10:00am	Germany	ZEW Economic Sentiment		8	6.2
10:00am	EU	Trade Balance		22.3B	23.3B
10:00am	EU	ZEW Economic Sentiment		14.3	12.3
10:00am	UK	Inflation Report Hearings
1:30pm	US	Core Retail Sales m/m		0.5%	0.5%
1:30pm	US	Retail Sales m/m		0.6%	0.6%
1:30pm	US	Empire State Manufacturing Index		-2	-6.8
1:30pm	US	Import Prices m/m		0.4%	0.1%
2:05pm	US	FOMC Member Tarullo Speaks
3:00pm	US	Business Inventories m/m		0.2%	0.2%
6:30pm	US	FOMC Member Fischer Speaks

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