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

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November 2020 | Base Metals

Broader markets generally upbeat on vaccine hopes, base metals prices hold up in high ground

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Markets were generally buoyant on the back of relief that a potential Covid-19 vaccine has been found, but the metals also seem hesitant this morning, Tuesday October 11, about what this will mean to the markets given how much they have run up already since the March lows.

* Asian Pacific equities were mixed, with China’s CSI 300 down for the second day as big tech, a big winner during lockdowns, encounter some profit-taking ...
* ...could metals be in the same boat?
* US treasury yields climbing – highlighting risk-on

Base metals
Three-month base metals prices on the London Metal Exchange were mixed, with aluminium the main gainer with an 0.8% rise to $1,926.50 per tonne, while the others were either side of unchanged, with copper off by 0.1% at $6,956 per tonne.

Volume on the LME has been light with 2,973 lots traded as of 5.34am London time, compared with 5,259 lots and 10,293 lots at similar times on Tuesday and Monday respectively.

The most-traded base metals contracts on the Shanghai Futures Exchange were more polarized with December aluminium leading on the upside with a 1.2% rise, with December nickel and December lead up by 0.5% and 0.7% respectively, while January tin (-0.5%), December zinc (-0.3%) and December copper (-0.3%) were all weaker, with the latter recently quoted at 52,000 yuan ($7,860) per tonne.

Precious metals
The precious metals complex continued with its rebound following Monday’s aggressive sell-off. The complex was up by an average of 0.6% this morning, with gold up by 0.3% at $1,881.90 per oz, this after Monday’s low at $1,851 per oz. Out of all the precious metals, palladium looks the strongest.

Wider markets
The yield on US 10-year treasuries has leapt higher again and was recently quoted at 0.98%, this after 0.92% at a similar time on Tuesday. This shows continued risk-on and that may weigh on gold prices further.

Asia-Pacific equities were mainly stronger this morning: the ASX 200 (+1.72%), the Hang Seng (+0.18%), the Nikkei (1.78%) and the Kospi (+1.35%), while the CSI (-0.66%) bucked the trend for the second day.

The US dollar index is consolidating rebound gains and was recently quoted at 92.72, this after being at 92.75 at a similar time on Tuesday.

As the dollar consolidates, the other major currencies have been mixed: the yen (105.24) has lost ground, the Australian dollar (0.7304) and the euro (1.1820) are consolidating and sterling (1.3258) has strengthened further.

Key data
Key economic data already out on Wednesday showed Japan’s preliminary machine tool orders shrinking less than before and trending back toward growth. Orders in October fell 5.9% compared with October 2019, this after being down 15% in September, year on year. Orders have recovered each month since May, when they were down 52.8% compared with May 2019.

No other key data is scheduled to be released today.

Today’s key themes and views
While the vaccine development is extremely welcome news, it is not surprisingly giving markets something to think about, especially those that have run higher in anticipation that unprecedented amounts of liquidity and support would continue for a long time. And, indeed given the economic damage that Covid-19 has dealt, we expect liquidity, stimulus and support to remain in place for an extended period, but given the vast amounts of debt governments have created, investors may be nervous that governments cut back on some of their plans. As such, we are not surprised the metals are pausing for thought and to see if announcements are made.

After the two bits of news that suggest some return to normality in the months and quarters ahead – the markets may well spend time rethinking what it means for the outlook and that could lead to some choppy trading as positions are adjusted accordingly.

Gold is back in the down channel that started off the August highs, but Monday’s low just held above the September low, so the downward trend has not extended yet. But with some strong lights appearing at the end of the tunnel, the world is looking a bit less uncertain than it was and that, combined with higher US treasury yields that raise the opportunity cost of holding gold, may be a headwind for gold.

William Adams