Base metals prices tread water, waiting for next direction

Following the expected US interest rate rise yesterday evening, December 14, the base metals have spent this morning consolidating, aluminium and tin prices on the LME are up 0.2%, the rest are off between 0.1% for copper ($5,740 per tonne) and lead and 0.4% for nickel. Volume has been average with 8,371 lots traded as of 07:02GMT. Precious metals are mainly lower, led by a 0.5% decline in spot silver prices to $16.73 per oz, gold prices are off 0.2% at $1,139.90 per oz, platinum prices are little changed, while palladium prices continue to buck the trend with a 0.7% gain to $726.90 per oz.

Ahead of the FOMC rate decision yesterday, December 14, the base metals were mostly bullish with the complex closing at 7pm with gains averaging 1.2%, led by a 3.7% rise in zinc prices to $2,818.50 per tonne and a 2.6% rise in lead, while the rest range between a 0.8% rise for nickel prices and a 0.5% fall in tin prices. Three-month copper prices closed at $5,746 per tonne. Precious metals spot prices were down between 1.1% for the PGMs and 1.5% for silver – gold prices closed down 1.4% at $1,142.70 per oz.  

In Shanghai, this morning December 15, most of the metals have rallied, the base metals complex is up an average of 1%, aluminium prices have bucked the trend with a 0.6% drop but the others are up between 0.5% for nickel prices and 2.2% for zinc prices – February copper prices are up 0.8% at Rmb 46,890 per tonne. Spot copper prices in Changjiang is up 1.1% at Rmb 46,730-46,930 per tonne, the spread is either side of flat, while the LME/Shanghai arb window should be open for some trading with the arb ratio at 8.17.

In other metals in China, May iron ore prices are down 1.1% on the Dalian Commodity exchange, SHFE steel rebar prices are little changed, while gold and silver prices are down around 0.8%. In international markets, spot Brent crude prices are up 0.6% at $54 per barrel.

Equities closed lower yesterday, the Euro Stoxx 50 closed down 0.8%, that being ahead of the FOMC announcement, while the Dow closed down 0.6% after the announcement. This morning in Asia, the reaction has generally been bearish, the exception is the Nikkei that has benefited from a weaker yen, while the Hang Seng is down 1.9%, the CSI 300 is off 1.1%, Kospi is little changed and ASX 200 is down 0.8%.

Needless to say the dollar index has shot higher, it reached 102.36 yesterday evening, it was recently quoted at 102.42. We wait to see whether this is a knee-jerk reaction given the rise was so well telegraphed, or whether the tighter monetary policy mindset now sets in to see the uptrend in the dollar continue. The euro is at 1.0492, the low earlier was 1.0468, sterling is at 1.2551, the yen has shot lower to 117.63 and the aussie is weaker at 0.7415. The yuan is weaker at 6.9358, as are the emerging market currencies we follow. It appears the rate rise was expected, but the fact the FOMC forecasts three further rate rises in 2017 has been seen as being more hawkish than expected.

The economic calendar is very busy today, Japan’s flash manufacturing PMI climbed to 51.9, but China’s foreign direct investments, dropped to 3.9% from 4.2%. Later there is flash PMI manufacturing and services data out across the Europe and the US. There is also data on UK retail sales and the Bank of England’s interest rate and monetary policy decisions. US data includes CPI, Philly Fed manufacturing index, initial jobless claims, current account, Empire State manufacturing index, NAHB housing index, natural gas storage and TIC longer term purchase data – see table below for more details.

The base metals prices do not seem to have been too focused on the US interest rate decision, the market has been following its own agenda in recent months. In recent weeks, prices have tended to consolidate and given the gains since late October that is not a surprised. It looks as though the underlying bullishness remains in place so the path of least resistance seems to be to the upside. We now need to wait to see if there is any negative fallout in emerging market economies about the prospects for higher interest rates, plus whether there is any pick-up in profit-taking ahead of year-end. Between now and year-end we would not be surprised to see profit-taking given funds are likely to be sitting on some large unrealised profits.

The more hawkish FOMC stance has weighed on bullion prices and the downward trend in gold prices has continued, although silver and platinum prices have held above recent support. With the US interest rate decision now out of the way, we wait to see whether the market now focuses on all the uncertainty that 2017 brings – including how big a splash the new President will make, the fallout from Brexit and how emerging markets will react to what looks likely to be a more hawkish US monetary policy. 

 

Overnight Performance
GMT	07:02	+/-	+/- %	Lots
Cu	5740	-6	-0.1%	2895
Al	1743.5	3.5	0.2%	1019
Ni	11425	-45	-0.4%	1296
Zn	2813	-5.5	-0.2%	2856
Pb	2363	-1.5	-0.1%	286
Sn	21240	40	0.2%	19
	Average		-0.1%	8,371
Gold	1139.9	-2.8	-0.2%
Silver	16.73	-0.08	-0.5%
Platinum	923.5	-0.5	-0.1%
Palladium	726.9	4.9	0.7%
	Average PM		0.0%

 

SHFE Prices 06:58 GMT	RMB	Change	% Change
Cu	46890	350	0.8%
AL	13045	-80	-0.6%
Zn	22900	490	2.2%
Pb	20720	235	1.1%
Ni	96130	440	0.5%
Sn	150510	2620	1.8%
Average change (base metals)	0		1.0%
Rebar	3413	1	0.0%
Au	267.1	-1.65	-0.6%
Ag	4231	-30	-0.7%

 

GMT	Country	Data	Actual	Expected	Previous
12:30am	JPY	Flash Manufacturing PMI	51.9	51.5	51.3
2:27am	CNY	Foreign Direct Investment ytd/y	3.9%		4.2%
8:00am	EUR	French Flash Manufacturing PMI		51.9	51.7
8:00am	EUR	French Flash Services PMI		51.8	51.6
8:30am	EUR	German Flash Manufacturing PMI		54.5	54.3
8:30am	EUR	German Flash Services PMI		54.9	55.1
9:00am	EUR	Flash Manufacturing PMI		53.8	53.7
9:00am	EUR	Flash Services PMI		53.9	53.8
9:30am	GBP	Retail Sales m/m		0.2%	1.9%
12:00pm	GBP	MPC Official Bank Rate Votes		0-0-9	0-0-9
12:00pm	GBP	Monetary Policy Summary
12:00pm	GBP	Official Bank Rate		0.25%	0.25%
12:00pm	GBP	Asset Purchase Facility		435B	435B
12:00pm	GBP	MPC Asset Purchase Facility Votes		0-0-9	0-0-9
Tentative	EUR	Long Term Refinancing Operation			45.3B
1:30pm	USD	CPI m/m		0.2%	0.4%
1:30pm	USD	Core CPI m/m		0.2%	0.1%
1:30pm	USD	Philly Fed Manufacturing Index		9.1	7.6
1:30pm	USD	Unemployment Claims			258K
1:30pm	USD	Current Account		-111B	-120B
1:30pm	USD	Empire State Manufacturing Index		3.1	1.5
2:45pm	USD	Flash Manufacturing PMI		54.2	54.1
3:00pm	USD	NAHB Housing Market Index		63	63
3:30pm	USD	Natural Gas Storage		-126B	-42B
9:00pm	USD	TIC Long-Term Purchases			-26.2B

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