MORNING VIEW: LME base metals prices mainly weaker as rallies tire

The base metals on the London Metal Exchange were mainly weaker this morning, Friday January 15, while those on the Shanghai Futures Exchange were mainly firmer in line with the stronger Chinese fundamentals.

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Base metals
Three-month base metals prices on the LME were mixed this morning, but with an overall downside bias, with the complex off by an average of 0.5%. Nickel led on the downside with a 1.1% fall to $18,115 per tonne, but earlier this morning prices had set a fresh high at $18,445 per tonne. Zinc was down by 0.9% at $2,729 per tonne, copper was down by 0.8% at $8,020 per tonne and tin was down by 0.2% at $21,035 per tonne. Aluminium was up by 0.2% at $2,012 per tonne and lead was little changed at $2,109 per tonne.

The most-traded base metals contracts on the SHFE were mainly firmer, the exception was February zinc that was down by 0.8%, while the rest of the complex was stronger by an average of 1%, led by a 2.3% rise in March nickel - the disruptions to supply in the Philippines will hit nickel supply to China. February aluminium was up by 1.3% and March copper was up by 0.6% at 59,090 yuan ($9,128) per tonne, while February lead and March tin were up by 0.3% and 0.4% respectively.

Precious metals
Spot gold was up by $0.80 per oz at $1,847.88 per oz this morning, while the more industrial precious metals were down between 1.1% and 1.4%.

Wider markets
The yield on US 10-year treasuries has slipped and was recently quoted at 1.10%, compared with 1.11% at a similar time on Thursday.

Asian-Pacific equities were mixed this morning, with a downward bias: the Kospi (-2.03%), the Nikkei (-0.62%), the CSI (-0.25%), the ASX 200 (+0.01%) and the Hang Seng (+0.08%).

Currencies
The US Dollar Index is treading water as it consolidates recent gains and was recently quoted at 90.32, this after 90.43 at a similar time on Thursday and after a high on Monday at 90.73.

The other major currencies were mixed this morning: the euro (1.2143) and the Australian dollar (0.7755) both slightly weaker, while sterling (1.3671) and the yen (103.66) were firmer.

Key data
Friday is a busy day on the economic front. Data already out showed Japan's tertiary industrial activity fell by 0.7% month on month in December, after a 1.6% gain in November.

There is a barrage of data out from the United Kingdom including: construction output, gross domestic production, goods trade balance, index of services and industrial and manufacturing production.

In Europe there is data on French consumer prices (CPI) and the EU trade balance, with US data on retail sales, producer prices (PPI), the Empire State manufacturing index, industrial production, capacity utilization, business inventories and University of Michigan data on inflation expectations and consumer sentiment.

Today's key themes and views
Apart from nickel that set fresh highs this morning, the rallies in the other base metals on the LME have halted and prices are generally consolidating, although for lead, zinc and aluminium, prices are drifting lower. While temporary corrections seem overdue, it does look as though there is no rush to sell the metals.

Overall, we think we are in a long-term bull market but we should expect countertrend moves along the way. But with the pandemic still spreading at a fast pace, which increases the chances of lockdowns or restrictive measures that could impact supply, supply chains may feel they need to keep well stocked.

Gold prices, having sold off earlier in the week, are now consolidating. There has been little reaction to Biden's stimulus plans, with treasury yields just edging lower and with the dollar still consolidating. As such, gold seems to be waiting for direction.

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