Forecasts and market analysis based on price assessments from Fastmarkets MB and Fastmarkets AMM

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November 2019 | Base Metals

Nickel and precious metals correcting lower

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While investors and traders are still waiting for direction on China-United States trade talks, markets are reviewing their individual situations and adjusting accordingly.

The two big movers have been the precious metals and nickel, both correcting lower as profit-taking and, or short-selling, set in, while the rest of the markets seem to be consolidating.

With US President Donald Trump addressing the Economic Club of New York this afternoon at 5pm London time, the market may get an update on his thoughts regarding policy.

Base metals
Three-month base metals prices on the London Metal Exchange have for the most part been firmer this morning, Tuesday November 12, the exception is nickel that was off by 0.3% at $15,530 per tonne. The rest of the complex was up by an average of 0.3%, led by 0.4% gains in copper and lead, with the former at $5,904 per tonne.

Traded volume has been average with 4,991 lots traded as at 5.41am London time.

In China, the most-traded base metals contracts on the Shanghai Futures Exchange were mixed, with February nickel down a hefty 2.7% as it caught up with Monday’s falls on the LME, but December aluminium and January tin were also weaker by 0.8% and 0.7% respectively. January lead and zinc were up by 0.5% and 0.8% respectively, while January copper was unchanged at 47,260 yuan ($6,744) per tonne.

The spot copper price in Changjiang was down by 0.1% at 47,030-47,140 yuan per tonne and the LME/Shanghai copper arbitrage ratio was slightly firmer at 8, compared with 7.98 at a similar time on Monday.

Precious metals
Spot gold and silver prices were weaker this morning, down by 0.4% and 0.3% respectively, with gold recently quoted at $1,450.01 per oz and silver at $16.79 per oz. But, platinum and palladium have run into some dip-buying and are up by 0.7% and 0.2% respectively.

Wider markets
Spot Brent crude oil prices were firmer this morning, with prices up by 0.34% from Monday’s close and recently quoted at $62.46 per barrel. The firmer oil price is another indication that markets are a bit more optimistic about the outlook, we feel.

The yield on benchmark US 10-year treasuries is little changed, it was recently quoted at 1.9404%, compared with around 1.9407% at a similar time on Monday morning. The German 10-year bund yield was stronger, however, recently quoted at -0.2322%, compared with -0.2637% at a similar time on Monday.

Asian equities were mixed this morning: the Hang Seng (+0.47%), the Nikkei (+0.81%), the Kospi (+0.79%), China’s CSI 300 (-0.27%) and the ASX 200 (-0.29%).

This follows a mixed performance in Western markets on Monday, where in the US, the Dow Jones Industrial Average eked out a small gain, it closed up by 0.04% at 27,691.49, which was a fresh record high, although the S&P 500 (-0.2%) and Nasdaq Composite (-0.13%) dipped. In Europe, the Euro Stoxx50 closed down by 0.08% at 3,696.82.

The dollar index is consolidating this morning and was recently quoted at 98.23, this after a strong run last week that had seen it rise from a low of 97.16 on November 4 to 98.40. This rebound follows the index’s fall to 97.12 from the October 1 high at 99.67.

The other major currencies we follow are mixed: the euro (1.1034) and the Australian dollar (0.6855) are consolidating, the yen (109.25) is weaker and sterling (1.2794) is firmer.

The yuan (6.9990) is also consolidating, but has been trending firmer since reaching a low against the dollar at 7.1842 in early September.

Key data
Data already out on Tuesday shows Japan’s machine tool orders continue to remain weak, they started falling a year ago, but the rate of decline has levelled out since June, but there is no sign of improvement yet.

Later there is data on the United Kingdom employment situation, ZEW economic sentiment data out for Germany and the European Union, with US data including the small business index from the National Federation of Independent Business.

US Federal Open Market Committee member Richard Clarida and President Trump are also speaking.

Today’s key themes and views
News about trade negotiations between China and the US needless to say remain all important for the market and the underlying trend across the base metals seems to be upward, which suggests the market is getting a bit more optimistic about trade talks. That said, nickel and lead have been heading lower recently, but we see those moves as counter trend moves while prices correct overbought conditions.

We still expect developments in US-China trade negotiations to set the overall direction and feel supply chains are destocked so positive developments could lead to a strong pick-up in apparent demand and therefore prices.

Gold prices, along with other havens, seem to be reacting to the pick-up in optimism, which is itself fueling some pick-up in risk appetite, as seen by the record highs in US equities.

William Adams