LME metals rebound, SHFE less bullish

Price weakness and choppy trading in the base metals yesterday, December 8, left three-month prices down 0.9% on average by the close, with nickel and zinc prices falling over 2%, while copper was down 0.9% at $5,780 per tonne and aluminium prices were up 0.9%. Precious metals were for the most part weak with gold, silver and platinum spot prices down between 0.4% and 0.7%, with gold prices at $1,170.30 per oz, while palladium prices bucked the trend by rallying 0.4% to $734 per oz.

This morning, December 9, the base metals are up across the board by an average of 0.9%, led by rebounds in nickel and zinc prices  that are up 1,7% and 1.4% respectively, copper prices are up 10% at $5,836, aluminium prices are up 0.9%, lead prices are up 0.4% and tin prices are little changed. Volume has been lighter than of late, with 5,407 lots traded – last week’s average around this time of day was around the 16,000 lots.

Gold, silver and platinum prices are down an average of 0.2% this morning, while palladium prices are unchanged.

In Shanghai, base metals prices are mainly weaker, the exception is aluminium that is up 1.6%, while the rest are down an average of 1.4%, led by falls of around 2.1% in lead and zinc prices, tin prices are down 1.2%, nickel prices are off 0.9% and copper prices are down 0.5% at Rmb 47,310 per tonne. So this morning China is looking weaker compared with the LME. The LME/Shanghai copper arb ratio has moved out to 1:8.1, which suggests the arb window is open.

In other metals in China, May iron ore prices are down 2.6% on the Dalian Commodity Exchange, on SHFE, May steel rebar is off 0.7% while gold and silver prices are down 0.3% and in international markets spot Brent crude prices are up 0.2% at $54.03 per barrel.

Equities continued to push on the upside yesterday, December 8 with the Euro Stoxx 50 closing up 1.4% and the Dow finishing up 0.3%. The stronger tone has fed through to most of Asia where the Nikkei is up 1.2%, the Hang Seng is off 0.5%, the CSI 300 is up 0.6%, the ASX 200 is up 0.3% and the Kospi is off 0.3%.

In FX, the euro slumped on the back of the ECB extending its quantitative easing, it has dropped to 1.0617, conversely the dollar index shot higher again. Before the ECB announcement, the dollar index had fallen to a low of 99.42, but has since rebounded to 101.13, sterling at 1.2589 is drifting lower, the yen is weak at 114.40, while the aussie is consolidating at 0.7472. The yuan is weaker at 6.8995 and most of the emerging market currencies we follow that had been strengthening have pulled back slightly on the back of the rebound in the dollar.

Stronger data was seen out of China again this morning with CPI and PPI climbing more than expected, especially PPI that climbed 3.3%, having been expected to rise 2.2%. Later there is data on Germany’s trade balance, France’s government budget balance, French industrial production, with UK data including goods trade balance, construction output and consumer inflation expectations. US data includes University of Michigan consumer sentiment, inflation expectations and wholesale inventories – see table below for more details.

The base metals have remained choppy even after option declaration and we see that as being part of a consolidation phase. We would not have been surprised by deeper pullbacks but so far dips have been limited, which suggests strong underlying bullish sentiment. We remain bullish on the fundamentals, but continue to think prices have run ahead of the fundamentals, but if enough of the market has been caught off guard by the change in sentiment that has been seen since late-October then the rallies may well be able to extend. The same seems to be happening in equity markets with US equities pushing the envelope on the upside as some fund managers are having to chase the market higher as they try to get back on board.

With optimism overflowing in other markets gold prices remain under pressure as money comes out of bullion and goes into other asset classes.  This may continue, but at some stage a rotation back the other way is likely, especially given how much political uncertainty there is likely to be in 2017 over what path president-elect Donald Trump’s administration takes and how Brexit unfolds. For now, however, the markets seem in no hurry to get cautious.   

 

Overnight Performance
GMT	06:10	+/-	+/- %	Lots
Cu	5836	56	1.0%	2175
Al	1743.5	16	0.9%	1384
Ni	11335	185	1.7%	809
Zn	2730	37	1.4%	949
Pb	2310	10	0.4%	79
Sn	21030	30	0.1%	11
	Average		0.9%	5,407
Gold	1168.26	-2.04	-0.2%
Silver	16.962	-0.043	-0.3%
Platinum	934.9	-1.1	-0.1%
Palladium	733.9	-0.1	0.0%
	Average PM		-0.1%

 

SHFE Prices 06:10 GMT	RMB	Change	% Change
Cu	47310	-220	-0.5%
AL	13325	215	1.6%
Zn	22655	-465	-2.0%
Pb	20710	-460	-2.2%
Ni	94860	-840	-0.9%
Sn	144000	-1790	-1.2%
Average change (base metals)	0		-0.9%
Rebar	3341	-22	-0.7%
Au	269.05	-0.7	-0.3%
Ag	4232	-11	-0.3%

 

Economic Agenda
GMT	Country	Data	Actual	Expected	Previous
1:30am	CNY	CPI y/y	2.3%	2.2%	2.1%
1:30am	CNY	PPI y/y	3.3%	2.2%	1.2%
7:00am	EUR	German Trade Balance		20.8B	21.3B
7:45am	EUR	French Gov Budget Balance			-83.0B
7:45am	EUR	French Industrial Production m/m		0.6%	-1.1%
9:30am	GBP	Goods Trade Balance		-11.9B	-12.7B
9:30am	GBP	Construction Output m/m		0.2%	0.3%
9:30am	GBP	Consumer Inflation Expectations			2.2%
3:00pm	USD	Prelim UoM Consumer Sentiment		94.3	93.8
3:00pm	USD	Final Wholesale Inventories m/m		-0.4%	-0.4%
3:00pm	USD	Prelim UoM Inflation Expectations			2.4%

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