Market and product

Base metals consolidated yesterday with average losses of 0.3 percent, with lead and tin falling around 1.5 percent and copper rising 0.8 percent, while the rest were little changed. Precious metals were mostly firmer with average gains of 0.4 percent, palladium dropped 0.4 percent, gold prices were up 0.4 percent at $1,077.50, while silver and platinum were up an average of 0.8 percent.

This morning the base metals are weaker by an average of 0.6 percent with all metals except tin in negative territory, led by a 1.6 percent decline in zinc to $1,546.50. Copper is down 0.6 percent at $4,616 – LME volume has been above average at 6,866 lots.

Precious metals are mixed, palladium is down 1.1 percent at $529.30, while the rest are little changed with gold prices up 0.2 percent at $1,080.10. North Korea’s latest nuclear test has added to geopolitical tensions.

In Shanghai, the base metals are mixed with copper up 0.6 percent at Rmb 36,350, while zinc leads on the downside with a one percent drop to Rmb 13,100. Aluminium and tin are up 0.3 percent, lead and nickel are off 0.1 percent. Spot copper in Changjiang is up 0.4 percent at Rmb 36,200-36,400, the spread with the futures has dropped to an equivalent of $8 back and the LME/Shanghai copper arb window remains open at 7.89, which should help underpin LME copper prices.

In other metals in China, gold is up 0.7 percent, silver is little changed, steel rebar is down 0.2 percent, iron ore prices fell back to $43.10 yesterday from Monday’s peak of $44.37 – the low in early December was $38.30. Brent crude prices in global markets are easing, last at $36.40 with WTI at $36.

Equities were firmer yesterday as they recovered from Monday’s China led sell-off with the Euro Stoxx 50 up 0.4 percent and the Dow up 0.1 percent. This morning, China’s CSI 300 is up 1.5 percent as government buying continues, while other regional stock markets are lower with the Nikkei off one percent, the Hang Seng is off 0.9 percent, the ASX 200 is off 1.2 percent and the Kospi is down 0.3 percent.

The dollar is on the rise again with the dollar index at 99.47 – this suggests safe-haven buying as the yen is also stronger at 118.75 and gold is firmer too. Other currencies are weaker with the euro at 1.0730, sterling at 1.4647 and the aussie at 0.7104. Emerging market (EM) currencies are weaker, led by the yuan that has fallen to 6.6913 and other EM currencies we follow are all on a back footing to various degrees. This suggests pressure are building up in EM economies again that could spill over into other markets.

The economic agenda is busy – the weak China’s Caixin services PMI is another depressing piece of data, later we get PMI services data out across Europe and the US, plus EU PPI. Other US data includes the ADP non-farm employment change, the trade balance, factory orders, crude oil inventories and the FOMC meeting minutes – see table below for more details.

The base metals are either consolidating or showing weakness and given further evidence of weakness in China, with a disappointing services PMI number, combined with some weaker US data of later, including yesterday’s auto sales, it is not surprising that there is little buying interest across the metals. As such, we would not be surprise to see sentiment remain weak and that suggests further tests of support. With China allowing its currency to weaken it raises the risks of unsettling EM markets that could lead to further broad market weakness. At some stage the continuing weakness in China is likely to lead to more stimulus and announcements of such could prompt short-covering, but it is difficult to anticipate when that will happen.

Gold prices are picking up some safe-haven interest, along with the dollar and the yen. We wait to see if gold can push up through $1,090 resistance. Silver and palladium are not following gold prices, although platinum is. Platinum’s discount to gold is around $195 per ounce.