METALS MORNING VIEW 01/10: Mixed start to trading in low-volume market

In the precious metals this morning, spot gold prices were off by 0.3% at $1,189.00 per oz, palladium prices were off by 0.5%, while silver prices were little changed and platinum prices were up by 0.3%. This follows a general day of strength last Friday that saw gold, silver and platinum prices rise by an average of 1.3%, while palladium prices eased by 0.8%.

Silver was the star performer last Friday with prices putting in a strong performance – given the size of the gross short fund position there may well be further room for short-covering now that prices appear to have put in a base. The gold/silver ratio was recently at 1:81.4, having been out at 1:85 in recent weeks.

Three-month base metals prices on the London Metal Exchange were for the most part firmer, the exception being copper where prices were down by 0.4% at $6,233 per tonne. The rest were up between little changed for aluminium and 0.9% for lead.

With Chinese markets closed for the Golden Week holiday to mark the country’s National Day, volume has been light with 1,606 lots traded as at 07:12am London time.

This follows a day of general strength last Friday when the complex closed up by an average of 1.2%, led by a 3.3% rise in zinc prices.

In wider markets, spot Brent crude oil prices were higher by 0.41% and were recently quoted at $83.18 per barrel while the market gets nervous about whether other oil producers will be able to fill the gap caused by continuing US pressure on countries to rein in their imports of Iranian oil. The yield on US 10-year treasuries has firmed to 3.0715%, having been as high as 3.1% September 26. The German 10-year bund yield has firmed and was recently quoted at 0.4810%.

Asian equity markets were mixed on Monday with the Nikkei up by 0.52%, taking it to the highest since 1991, while the ASX 200 is down 0.57% and the Kospi is off 0.18%. This follows a mixed performance in western markets on Friday; in the United States, the Dow Jones closed up by 0.07% at 26,458.31, while in Europe, the Euro Stoxx 50 was down by 1.47% at 3,399.20 – the latter dragged down by concerns over Italy’s budget plans.

The dollar index continues to react favorably to the US rate rise with a move up to 95.25 and has done a good job in negating the weakness seen over the past six weeks or so.

With the dollar stronger and Europe facing issues on Brexit and Italy’s budget, the euro (1.1586) and sterling (1.3030) are weaker, as are the yen (113.95) and the Australian dollar (0.7207) is consolidating.

The emerging currencies we follow are for the most part consolidating; the exception is the Mexican peso that is stronger on the back of the new trilateral trade deal between the US, Mexico and Canada.

The economic agenda is extremely busy on Monday, with Tankan and purchasing managers’ index (PMI) data already out in Japan coming in weaker than previous readings. Later there is manufacturing PMI data out across Europe and the US, as well as data on German retail sales, Italian unemployment, UK lending, US construction spending and total vehicle sales. There is also a Eurogroup meeting and US Federal Open Market Committee member Raphael Bostic is speaking.

The base metals prices are looking quite diverse; zinc is the latest to break higher, while copper and nickel consolidate after their upside breaks on September 21. Lead seems to be mustering the energy to follow zinc, while aluminium and tin remain rangebound. With China on holiday this week, lower liquidity is likely to lead to choppy prices, but the trade deal between the US, Mexico and Canada is a positive development and that may instill some hope that other deals will follow.

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