22/01/2016 14:47 AST
The metals avoided selling off two days ago while equities weakened but they did manage to rally yesterday as equities rebounded. This suggests the base metals may be tired on the downside, at least for now.
The metals closed up an average of 1.4 percent yesterday, led by zinc and lead, which climbed around 1.8 percent, Aluminium was the laggard, with a 0.7-percent gain, while copper closed up 1.2 percent at $4,438.
Precious metals were mixed yesterday – silver and platinum were around 0.5 percent weaker while gold prices were little changed at $1,100 and palladium was up 0.6 percent.
This morning the base metals are up an average of 0.3 percent, with zinc leading the way, rising 0.7 percent rise to $1,520. Nickel is up 0.6 percent and copper is up 0.2 percent at $4,446 while tin is the only one in negative territory, with volume average at 6,432 lots traded.
Precious metals are mixed this morning – gold is 0.2 percent weaker at $1,098.10 but the more industrial metals are stronger, with the PGMs up 0.9 percent and silver up 0.2 percent at $14.08.
In Shanghai, the base metals are up an average of 0.9 percent, with nickel and tin up 1.3 percent, aluminium and zinc up around one percent, lead up 0.2 percent and copper up 0.5 percent at 35,220 yuan.
Spot copper is up just 0.1 percent at 34,950-35,100 yuan; the lag in the physical price has pushed the spread with the futures into a contango of around $20 per tonne.
This suggests short-covering has lifted the futures, while strong import data may have damped the physical market, but the LME/Shanghai copper arb window remains open – the ratio is at 1:7.93.
In other commodities in China, iron ore prices in Dalian are up around two percent, steel rebar is up one percent, but gold and silver prices are off around 0.3 percent. Crude oil is up around 3.2 percent at $30.57.
Equities rebounded yesterday – the Euro Stoxx 50 concluded 2.2 percent higher and the Dow closed up 0.7 percent. Asia has followed suit, helped by a firmer oil price. The CSI 300 is up 1.2 percent, the Nikkei is up a whopping 5.9 percent, the Hang Seng is up 2.9 percent, the ASX 200 is up 1.1 percent and the Kospi is up 2.1 percent.
The dollar is firmer with the dollar index is at 99.28, the euro is slightly weaker at 1.0840, ECB President Mario Draghi hinted yesterday that there could be more stimulus, which seems to be giving market sentiment a bit of a lift.
Sterling is trying to bounce, last at 1.4235, with euro-sterling at 0.7616, the aussie is also attempting a rebound, last at 0.7018, while the yen is weaker at 117.97. Emerging market currencies are edging higher off recent lows, the exception in the real that is falling, last at 4.1605, and approaching the September lows of 4.2472.
On the data front, Japan’s flash manufacturing PMI dipped to 52.4 from 52.6; more flash PMI data is out across Europe and the US throughout the day.
In addition, UK data includes retail sales and the public sector borrowing requirement and additional US data includes existing home sales and CB leading indicators. ECB President Mario Draghi and UK MPC member Sir Jon Cunliffe are speaking.
The base metals are edging higher from recent lows so perhaps sentiment is turning slightly less bearish but we have seen all too many times before that rallies have been squashed so we need to be prepared for that again.
Still, generally the tighter supply fundamentals have largely been ignored by the relentless price declines but they will be tightening up supply – at some stage prices may put in a delayed reaction for which we need to be prepared.
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