The strength of the rebounds suggest strong sentiment

The base metals put in another solid performance yesterday, November 23, with three-month prices closing up an average of 2.1%, led by a 3.5% gain in zinc prices, with copper prices up 2.8% at $5,768 per tonne. Precious metals headed the other way with prices down an average of 1.4%, led by 2% declines in spot gold and silver prices, with gold prices at one stage setting a low of $1,181.90 per oz, before closing at $1,189.50 per oz.

This morning, copper and lead prices lead in the upside with three-month copper prices up 2.3% at $5,903 per tonne and lead prices up 1.2%. The other metals are consolidating yesterday’s gains, but volume has been high across the board, with 17,281 lots traded as of 06:36 GMT, of which 8,521 lots have been copper.

Precious metals are generally weaker this morning, the exception is palladium where prices are up 0.3% at $734.20, while the rest are off an average of 0.4%, with spot gold prices at $1,186.60 per oz.

In Shanghai, the January base metals contracts are up an average of 3.1%, the exception is aluminium where prices are off 0.2%. Copper leads on the upside with a 5.8% gain to Rmb 48,410 per tonne, lead prices are up 5% and zinc prices are up 4.5%. Spot copper prices in Changjiang are up 6% at Rmb 48,260-48,460 per tonne, the spread between spot and the January contracts is at an equivalent of $7 per tonne backwardation, while the LME/Shanghai copper arb ratio has expanded to 1:8.18, meaning the arb window should be open.  

In other metals in China, January iron ore prices are up 2.4%, on SHFE, steel rebar prices are up 2.4%, while gold and silver prices are down 0.9% and 0.6% respectively. In international markets, spot Brent crude oil prices are up 0.1% at $48.92 per tonne.

Equities – were mixed yesterday with the Euro Stoxx 50 off 0.4% and the Dow closed up 0.3%. This morning in Asia, the Nikkei is up 0.9%, the Hang Seng is off 0.3%, the CSI 300 is up 0.2%, the ASX 200 is little changed, while the Kospi is off 0.8%.

In FX, the dollar index continues to rise, it was recently quoted at 101.80, the euro is weaker at 1.0539, as is the yen at 112.82, sterling is flat at 1.2430 as is the aussie at 0.7377. The yuan continues to fall, it was recently quoted at 6.9251, and emerging market (EM) currencies are weakening too, especially the rupee, ringgit and rupiah. These weaker EM currencies do not seem to be worrying broader markets yet, but they are signalling unease.

Japan’s flash manufacturing PMI dropped to 51.1 from 51.4, German final GDP came in unchanged at 0.2%, later there is data out of German Ifo business climate, GFK consumer climate and UK mortgage approvals – see table below for more details.

The strength of rebounds in base metals prices after last week’s correction shows how strong bullish sentiment has become, at least amongst investors/funds. Given this, prices may well have further to go, before they run into more supply. Lead and zinc prices are the two metals setting fresh highs for the years, the others seem set to follow suit.

While the base metals are rallying, the gold, silver and platinum prices seem to be suffering as money flows out of precious metals and into other assets. The strong dollar will also be weighing on prices. We saw a sell-off in gold prices last year ahead of the December FOMC meeting, but no sooner had a rate rise been announced, metals prices turned higher. We wait to see if history repeats itself. Given all the uncertainty surrounding Brexit and the next US administration, we would have thought there was still demand for safe-havens – as such we expect dips to run into bargain hunting.   

 

Overnight Performance
GMT	06:36	+/-	+/- %	Lots
Cu	5903	135	2.3%	8521
Al	1778.5	-0.5	0.0%	2623
Ni	11615	-15	-0.1%	2332
Zn	2701	-5	-0.2%	2905
Pb	2265.5	27.5	1.2%	867
Sn	21305	20	0.1%	33
	Average		0.6%	17,281
Gold	1186.62	-2.88	-0.2%
Silver	16.294	-0.041	-0.3%
Platinum	922.3	-6.7	-0.7%
Palladium	734.2	2.2	0.3%
	Average PM		-0.2%

 

SHFE Prices 06:40 GMT	RMB	Change	% Change
Cu	48410	2650	5.8%
AL	14175	-35	-0.2%
Zn	22560	980	4.5%
Pb	19975	945	5.0%
Ni	95400	2540	2.7%
Sn	148160	1110	0.8%
Average change (base metals)	0		3.1%
Rebar	2984	70	2.4%
Au	273.5	-2.5	-0.9%
Ag	4134	-24	-0.6%

 

Economic Agenda
GMT	Country	Data	Actual	Expected	Previous
12:30am	Japan	Flash Manufacturing PMI	51.1	51.7	51.4
7:00am	Germany	Final GDP q/q	0.20%	0.2%	0.2%
9:00am	Germany	Ifo Business Climate		110.6	110.5
9:30am	UK	BBA Mortgage Approvals		38.8K	38.3K
12:00pm	Germany	GfK Consumer Climate		9.8	9.7

 

 

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