Strong gains in base metals prices as risk-on returns

Base metals have opened on a strong footing this morning with three-month prices up an average of 2.1 percent, skewed by a 4.7 percent rise in nickel to $10,940 per tonne and a 3.6 percent rise in tin to $21,945 per tonne. The others are up between 0.6 percent for aluminium and 1.7 percent for zinc, with copper prices up 1.3 percent at $5,057 per tonne. Volume has been extremely strong at 24,954 lots traded as of 07:06 GMT.

Precious metals are generally weaker this morning, spot prices are down an average of 0.6 percent , with gold and silver off around 1.1 percent with gold prices at $1,289.60 per oz, while platinum is off 0.8 percent and palladium is bucking the trend with a 0.5 percent gain to $625.20 per oz.

In Shanghai, the January base metals are up around 2.7 percent this morning, with nickel and tin up 5.4 and five percent respectively, aluminium is little changed, zinc and lead are up one and 1.9 percent respectively, while copper prices are up 2.9 percent at Rmb 40,340 per tonne. Spot copper prices are up 1.9 percent at Rmb 39.950-40,150 per tonne in Changjiang, the spread has switched to a contango, equivalent to around $28 per tonne, while the LME/Shanghai copper arb ratio has eased to 1:7.96, suggesting the arb window is just closed. With the futures rising above spot prices, it suggests the focus is on forward buying.

In other metals in China, January iron ore prices are up 3.3 percent on the Dalian Commodity Exchange, on SHFE, January steel rebar prices are up six percent, while gold and silver prices are down 0.5 and 0.4 percent respectively.

Concerns about the US election weighed on equity markets on Friday with the Euro Stoxx 50 off 0.6 percent and the Dow was down 0.2 percent, but overnight developments with the FBI clearing Hillary Clinton of any criminal wrongdoing has seen equities rebound. The Nikkei is up 1.6 percent, the Hang Seng is up 0.9 percent, the CSI 300 is up 0.1 percent, the Kospi is up 0.8 percent and the ASX 200 is up 1.4 percent. With spot gold prices off, it does look as though risk is on again.

In FX, the dollar index has bounced to 97.60, from Friday’s low of 96.88. The euro is pulling back, it was recently quoted at 1.1063, as are sterling at 1.2423 and the yen at 104.45, while the aussie is firmer at 0.7674. The yuan is weaker after a week of rebounding, it was recently quoted at 6.7744, while most of the other emerging market currencies we follow are firmer, with the exception of the ringgit.

On the economic calendar Germany’s factory orders dropped 0.6 percent, after a 0.9 percent gain in September, data out later includes EU retail PMI, Sentix investor confidences, retail sales and US data includes labor market conditions, a loan survey and consumer credit – see table below for more details.

The base metals have generally been running higher for two weeks and the fact that continued through London’s Metal Week suggests sentiment has turned more bullish. Given the gains, buying seems to be absorbing what scale-up selling there is, so for now we would run with the trends. We continue to remain quietly bullish.

With risk-on returning this morning spot gold prices are pulling back, but we would not be surprised to see the more industrial precious metals get some lift on the back of the strength in the base metals. This is especially so for the PGMs that sold off heavily in recent months. 

 

Overnight Performance
GMT	07:06	+/-	+/- %	Lots
Cu	5057	65	1.3%	9870
Al	1725.5	9.5	0.6%	2800
Ni	10940	490	4.7%	6929
Zn	2486.5	42	1.7%	4786
Pb	2117	19.5	0.9%	466
Sn	21945	755	3.6%	103
	Average		2.1%	24,954
Gold	1289.6	-14.35	-1.1%
Silver	18.19	-0.215	-1.2%
Platinum	989.5	-7.5	-0.8%
Palladium	625.2	3.2	0.5%
	Average PM		-0.6%

 

SHFE Prices 07:10 GMT	RMB	Change	% Change
Cu	40340	1150	2.9%
AL	13400	15	0.1%
Zn	20005	205	1.0%
Pb	16970	315	1.9%
Ni	87950	4520	5.4%
Sn	147400	7010	5.0%
Average change (base metals)	0		2.7%
Rebar	2889	163	6.0%
Au	281.75	-1.5	-0.5%
Ag	4115	-18	-0.4%

 

Economic Agenda
GMT	Country	Data	Actual	Expected	Previous
12:00am	Japan	Average Cash Earnings y/y	0.2%	0.2%	0.0%
7:00am	Germany	Factory Orders m/m	-0.6%	0.3%	0.9%
8:30am	UK	Halifax HPI m/m		0.2%	0.1%
9:10am	EU	Retail PMI			49.6
9:30am	EU	Sentix Investor Confidence		9.3	8.5
10:00am	EU	Retail Sales m/m		-0.2%	-0.1%
All Day	EU	Eurogroup Meetings
3:00pm	US	Labor Market Conditions Index m/m			-2.2
Tentative	US	Loan Officer Survey
8:00pm	US	Consumer Credit m/m		17.6B	25.9B

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