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

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January 2022 | Base Metals

Base metals prices follow broader markets lower on hawkish Fed stance

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Base metals prices on the London Metal Exchange were weaker across the board on the morning of Thursday January 27, as the market reacted to weakness in the broader markets following comments by US Federal Reserve chair Jerome Powell that the Fed would take a tough stance on inflation with the possibility of a string of rate increases.

Conversely, base metals prices on the Shanghai Futures Exchange were mainly firmer in reaction to the strength on the LME on Wednesday and due to the stronger dollar and weaker yuan.

• Western equity index futures point to a weaker opening this morning.
• US 10-year treasuries spring higher.
• Geopolitical concerns surrounding Russia/Ukraine remain firmly in place.

Base metals
Three-month base metals prices on the LME were down by an average of 0.8% this morning; tin ($42,250 per tonne) was down the least with a 0.1% fall, highlighting its tight fundamentals, while nickel ($22,420 per tonne) and copper ($9,776 per tonne) were down the most with losses of 1.6% and 1.3% respectively. The rest were down by around 0.6%.

On the Shanghai Futures Exchange, the March lead contract was down by 0.5%, March tin was up by 2.4%, while the rest were up by an average of 0.4%. March copper was up by 0.3%, at 70,280 yuan ($11,070) per tonne.

Precious metals were weaker across the board with losses averaging 1.1% as they got caught up in the risk-off sell-off. Gold was off the least, with a 0.5% fall to $1,812.05 per oz. Given the run-up in the dollar and bond yields, this was unsurprising.

Wider markets
The yield on United States 10-year treasuries sprung higher to 1.84%, up from 1.77% at a similar time on Wednesday.

Asia-Pacific equities were markedly weaker on Thursday: the Kospi (-3.5%), the Hang Seng (-2.69%), the Nikkei (-3.11%), China’s CSI 300 (-1.72%) and the ASX 200 (-1.77%).

The US Dollar Index was catapulted higher by the change in the Fed’s stance and was recently at 96.67, compared with 95.97 at a similar time on Wednesday.

Other major currencies weakened: the euro (1.1220), the Australian dollar (0.7065), the Japanese yen (114.67) and sterling (1.3428).

Key data
Key economic data out on Thursday includes German GfK consumer climate, Spanish unemployment rate, UK Confederation of British Industry realized sales, US data on advanced gross domestic product, advanced GDP price index, durable goods orders, initial jobless claims, pending home sales and natural gas storage.

Thursday’s key themes and views
Markets are likely to continue to react to the increased hawkish tone of the Fed, but perhaps markets are overreacting as the Fed has telegraphed it was on this course, although it suggested it might go down the course faster now - but it is starting to tighten from a very low base. Overall, while equities may react further; the outlook for metals does not seem so damaged, especially as the Fed’s signal is happening due to its concern about inflation, and inflation may well support commodity prices.

At times like these, gold often has an initial reaction in the same direction as the broader market, but then, once money has come out of other assets, some of it is parked in gold, meaning gold’s secondary reaction is often counter to its initial reaction.