Base metals prices on the London Metal Exchange and the Shanghai Futures Exchange were mixed on the morning of Wednesday September 8. Aluminium, nickel and zinc prices on the LME were holding up well, while copper, tin and lead look more vulnerable.
* Federal Open Market Committee member James Bullard said the Federal Reserve should start tapering, which has lifted US treasury yields and the dollar
* Market participants now focused on whether the European Central Bank (ECB) will signal it is ready to start tapering – the ECB meets on Thursday
Base metals
Three-month base metals prices on the LME were mixed but little changed this morning with copper ($9,330.50 per tonne) and tin ($31,850 per tonne) down by 0.1% and 0.5% respectively, while the rest were up by an average of 0.2%.
The most-active base metals contracts on the SHFE were also mixed with copper, lead and tin down by an average of 0.4%, with October copper off by 0.5% at 69,000 yuan ($10,675) per tonne, while the rest were up by an average of 0.6%.
Precious metals
Spot gold was up by 0.2% at $1,797.86 per oz this morning, recovering slightly after Tuesday’s 1.5% decline, which happened in the face of the stronger dollar and US treasury yields.
Wider markets
The yield on US 10-year treasuries has climbed and was recently at 1.37%, compared with 1.34% at a similar time on Tuesday.
Asia-Pacific equities were mainly weaker this morning: the Nikkei (+0.61%), the Hang Seng (-0.42%), the CSI 300 (-0.61%), the Kospi (-0.76%) and the ASX 200 (-0.43%).
Currencies
The US Dollar Index rebounded on Tuesday and is building on those gains this morning, with the index at 92.57, compared with 92.20 level at a similar time on Tuesday.
With the dollar firmer, the major currencies are weaker: sterling (1.3771), the euro (1.1837), the Australian dollar (0.7384) and the Japanese yen (110.37).
Key data
Data already out on Wednesday showed Japan’s bank lending rose by 0.6% year on year in August, after a 0.9% gain in July, while the country’s gross domestic product (GDP) climbed by 0.5% in the second quarter, after a 1% decline in the first quarter. But the GDP price index fell by 1.1% year on year and the economic watchers sentiment index fell to 34.7 in August, having been 48.4 in July. France’s private payrolls climbed by 1.4% in in the second quarter, compared with the first quarter.
Later there is key data on Italian retail sales, with US data on job openings, economic optimism, consumer credit and the Beige Book.
Wednesday’s key themes and views
Consolidation seems to be the theme across the metals, but aluminium, zinc and nickel are holding up better than the other base metals, with aluminium leading overall, driven by production constraints in China. With copper, tin and lead looking more vulnerable, we will once again see whether there is appetite for profit-taking, or will we just see more consolidation.
Given there are many headwinds for the global economy, especially the ramifications from supply-chain disruptions, there seems to be growing risk that the apparent endless uptick in equity markets might be running ahead of the fundamentals. Any correction in equities may well drag the metals down too - so we are wary about which way the metals will head once they move out of their sideways ranges. We remain long-term bullish but acknowledge there are risks in the short-to-medium term.
Gold ran into resistance around the $1,834 per oz level - we wait to see if the dips once again attract buying; given the above, there may be more demand for havens.