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April 2022 | Base Metals


Base metals run into dip buying on LME, but will there be follow-through buying?

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Base metals prices on the London Metal Exchange rebounded on the morning of Tuesday April 26, while those on the Shanghai Futures Exchange were generally weaker in response to LME weakness on Monday.

Dip buying seems to be unfolding again but, given the stronger macro-economic headwinds, we would be wary in case this rebound does not last.

* The slide in China’s renminbi yuan is a potential alarm bell
* But the Chinese central bank says it will help support the economy, which seems to be providing support so far on Tuesday

Base metals
Three-month base metals prices on the LME were up across the board by an average of 1.6% on Tuesday morning, but this was after a fairly ugly average price fall of 3.4% on Monday. The latest Covid-19 lockdowns in China will have far-reaching consequences because trade is affected and the global economic headwinds from higher inflation, interest rates and energy prices mean the metals may well remain under pressure for longer.

The most-traded contracts on the SHFE were, for the most part, weaker on Tuesday morning. The exception was June tin, which was up by 1.9%, while the rest were down by an average of 0.7%. June copper was off by 0.5%, at 73,700 yuan ($11,270) per tonne.

Precious metals
Precious metals also moved higher on Tuesday morning and were up by an average of 0.8%, again after weak performance on Monday, when gold, silver and platinum fell by an average of 1.3%, while palladium fell by 8.2%. On Tuesday morning, gold was up by 0.3% at $1,904.16 per oz.

Wider markets
United States 10-year treasuries yields were little changed on Tuesday morning and were recently at 2.85%, having been 2.86% at a similar time on Monday.

Asia-Pacific equities were mainly firmer on Tuesday morning: the Nikkei (+0.68%), the Kospi (+0.48%), the CSI 300 (+1.43%) and the Hang Seng (+1.91%). The exception was the ASX 200 (-1.95%), which has some catching up to do, having been closed for Anzac Day on Monday.

Currencies
The US Dollar Index was consolidating on Tuesday morning and was recently at 101.58, little changed from where it was at a similar time on Monday, but down from Monday’s high of 101.86.

Other major currencies are also consolidating: the euro (1.0729), the Japanese yen (127.92), sterling (1.2750) and the Australian dollar (0.7214).

Key data
Key economic data already out on Tuesday showed that Japan’s unemployment rate was at 2.6% in March, compared with 2.7% in February, with the Bank of Japan’s core consumer price index rising by 1.1% year on year in March, compared with a 1% rise in February.

Later, there is US data on durable goods orders, house prices, consumer confidence, new home sales and the Richmond manufacturing index.

Tuesday’s key themes and views
Base metals are finding some support this morning, but it is too early to say whether the rebound signals the end of the correction. While we have got used to dips finding good support, we think there are now enough headwinds coming from different directions to be of concern. The unusually sharp move in the yuan is another cause for concern, if it is a barometer of the situation in China. As such, Tuesday’s show of strength may be a pause in the correction.

Gold and the precious metals got dragged down with the broad-based weakness on Monday, which was a sign of general liquidation. We would now be looking for gold to pick up some haven demand, just in case the broader market suffers further.