METALS MORNING VIEW 30/10: Metals off to a quiet start

Volume has been above average with 9,306 lots traded as of 07:46 GMT.

This follows a weak performance on Friday when the base metals complex closed down by an average of 1.3%, led by a 2% drop in lead prices and a 1.8% fall in copper prices.

This morning, spot gold and silver prices are weaker by 0.3% and 0.5%, respectively, while the platinum group metals are firmer, with palladium prices up by 0.4% and platinum prices up by 0.1%. This follows a mixed performance on Friday, when gold prices were little changed, silver prices closed up by 0.2%, palladium prices were 0.5% firmer and platinum prices were down by 0.3%.

Base metals prices on the Shanghai Futures Exchange (SHFE) are weaker across the board with losses averaging 1.2%. Lead prices are off the most with a 3% drop, followed by copper prices that are down by 1.5% at 53,570 yuan ($8,055) per tonne and nickel prices that are down by 1.3%, while the rest are off by between 0.6% for aluminium prices and 0.1% for zinc prices. Spot copper prices in Changjiang are down by 1.9% at 53,630-534810 yuan per tonne and the London/Shanghai copper arbitrage ratio has rebounded to 7.82, compared with 7.69 on Friday.

The steel-orientated metals in China are weaker again this morning with iron ore prices dropping by 3.3% to 425 yuan per tonne on the Dalian Commodity Exchange, while steel rebar prices on the SHFE are off by 1.3%. Gold and silver prices on the SHFE are weaker by 0.4% and 0.3%, respectively.

In international markets, spot Brent crude oil prices are firmer, up by 0.26% at $60.73 per barrel. The yield on US ten-year treasuries is weaker at 2.40%, compared with 2.46% on Friday morning and the German ten-year bund yield is similarly weaker at 0.39%, down from 0.43% on Friday morning.

Equities in Asia are generally negative with the Nikkei little changed, the CSI 300 off by 0.3%, the Hang Seng down by 0.4%, but the ASX 200 is 0.3% firmer and the Kospi is up by 0.2%. This follows continued firmness in western markets on Friday: in the USA, the Dow closed up by 0.14% at 23,434.19, while in Europe, the Euro Stoxx 50 closed up by 0.19% at 3,657.72.

The dollar index at 94.64 is consolidating its gains from the end of last week, which was when the dollar broke higher. Conversely, the euro’s recent weakness has paused at 1.1635, sterling is firmer at 1.3159, as are the yen at 113.55 and the Australian dollar at 0.7685. We are still awaiting US President Donald Trump’s decision on who will be the next US Federal Reserve chair, so the dollar could still see some short-lived volatility, but for now the dollar’s breakout suggests the dollar is pushing on with its uptrend, which could prove to be a headwind for metals prices.

The Chinese yuan at 6.6429 is firmer and with the dollar’s recent show of strength consolidating the other emerging currencies we follow are generally drifting higher.

Economic data already out today includes German retail sales (0.5%) that was as forecast, the Spanish flash consumer price index (CPI) that dipped to 1.6% from 1.8% previously and UK lending data – see table below. Data out later includes US personal income, spending and PCE prices.

This morning’s mixed performance on the LME suggests traders are waiting for fresh direction to come from the industry’s gathering in London this week. We think Friday’s weakness was partially about book squaring as metal traders headed for London. Our view of late has been to remain quietly bullish, but expect trading to become choppier as prices are generally in high ground, so we should expect more bouts of scale-up selling along the way – this seems to be playing out.

Gold prices are looking weaker with prices testing recent support levels, the low on October 6 was $1,260.70 per oz. Silver and platinum prices are under pressure too, while palladium prices are managing to hold up relatively well. In the absence of any pick-up in geopolitical tensions, the stronger dollar and record setting equity markets are likely to keep downward pressure on prices.

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