Base metals underperform precious metals despite positive global risk sentiment

• The London Metal Exchange (LME) reopens today after being closed for holidays earlier this week.
• The poor liquidity conditions stemming from the year-end holiday season is likely to intensify the sell-off in base metals and the rebound in precious metals.
• Global risk sentiment remains positive amid a muted global data flow.

This morning, base metals on the LME are moving lower, posting an average loss of 0.6%. Nickel is the worst performer, falling 2.2%, followed closely by lead, weakening by 1.8%. Copper and aluminium are the only metals in positive territory, showing gains of 1.3% and 0.6% respectively. But precious metals are enjoying strong gains, with the complex rising 1.7%.

In Shanghai, base metals on the SHFE are trading much stronger, posting an average gain of 1.7%. Tin is the strongest performer, climbing 3.3%, followed by copper, appreciating by 2.7%. Aluminium, down 0.5%, is the only metal to post a loss. At the same time, spot copper in Changjiang is climbing 3.0% at 45,360-45,560 yuan, while the contango with the futures is at $37 per tonne, and the LME/Shanghai copper arb ratio is at 1:8.2.

Bonds – The US government bond market weakened slightly yesterday, with the 10-year US bond yield closing up at 2.56%, slightly below its recent peak of 2.60% reached in mid-December. Investors continued to expect stronger economic growth and higher inflation thanks to pro-growth policies implemented by the Trump’s incoming administration.

Stocks – Broad equities ended stronger yesterday amid thin trading volumes. In Europe, the Euro Stoxx 50 closed up 0.1% at 3,279. In the US, the Dow Jones edged 0.06% higher to 19,945 while the S&P 500 moved 0.22% higher to close at 2,269. In Asia this morning, equities are trading mixed. While the Kospi is down 0.87% and the CSI 300 down 0.44%, the Hang Send is up 1.0% while the Nikkei 225 is about flat.

FX – The dollar is about flat this morning, with the DXY trading at 102.8, broadly unchanged since the middle of December. The dollar has enjoyed a significant appreciation since the victory of Trump in the US elections on expectations of stronger global growth dynamics and a faster monetary policy tightening cycle. The horizontal consolidation in the dollar may continue early next year before another powerful rally emerge. This should remove temporarily a strong headwind for base and precious metals.

The economic agenda is very light today. Investors will focus to the release of US pending home sales for November this afternoon and the Bank of Japan (BoJ) summary of opinions. Despite a muted data flow, volatility across the metals may pick up considering the poor liquidity conditions during the year-end holiday.

Base metals may continue to trade lower in the days ahead as investors will continue to deleverage during this holiday season rather than taking tactical bets. Excessive bullishness seen in some metals, most notably copper, seems to have paused for now, the latest CFTC statistics showed. Due to poor liquidity conditions, the fluctuations across the complex could be intensified.

Precious metals may continue to rebound in the coming days, principally because the dollar rally seems to have paused while US real rates appear to have peaked temporarily. Because global risk sentiment remains presently positive, we expect gold and platinum to underperform silver and palladium.

 

Overnight Performance
GMT	07:52	+/-	+/- %	Lots
Cu	5540	70.5	1.3%	3923
Al	1725	10	0.6%	1871
Ni	10200	-230	-2.2%	4357
Zn	2538	-39	-1.5%	3914
Pb	2030	-37	-1.8%	657
Sn	21000	-25	-0.1%	28
	Average		-0.6%	14,750
Gold	1142.3	8.35	0.7%
Silver	15.925	0.205	1.3%
Platinum	903.5	12.5	1.4%
Palladium	677.2	21.2	3.2%
	Average PM		1.7%

 

SHFE Prices 07:55 GMT	RMB	Change	% Change
Cu	45620	1180	2.7%
AL	12650	-60	-0.5%
Zn	20600	615	3.1%
Pb	17590	120	0.7%
Ni	85820	1060	1.3%
Sn	146980	4690	3.3%
Average change (base metals)	0		1.7%
Rebar	2989	58	2.0%
Au	267.3	1.95	0.7%
Ag	4042	30	0.7%

 

Economic Agenda
GMT	Country	Data	Actual	Expected	Previous
3:00pm	US	Pending Home Sales m/m		0.6%	0.1%
11:50pm	Japan	BOJ Summary of Opinions

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