METALS MORNING VIEW 04/02: Metals well placed to extend higher

Three-month base metals prices on the London Metal Exchange were mixed this morning, Monday February 4, with copper down by 0.4% at $6,116 per tonne and zinc leading on the upside with a 0.6% gain. Aluminium, nickel and lead were all up by 0.2% and tin was little changed.

With the Lunar New Year holidays (February 4-10) underway in China and across most of Asia, volume across the LME base metals complex has been light with 1,788 lots traded at 6.40am London time.

In the precious metals this morning, gold, silver and palladium prices were weaker by between 0.1% and 0.2%, with gold at $1,312.85 per oz, while platinum was up by 0.2% at $822.70 per oz. 

In wider markets, the spot Brent crude oil price was off by 0.10% at $62.78 per barrel – prices are once again challenging resistance that lies between $62 and $63.75 per barrel. 

The yield on US 10-year treasuries has climbed, it was recently quoted at 2.6904%. The yields on the US 2-year and 5-year treasuries remain inverted, although the gap is narrower, they were recently quoted at 2.5090% and 2.5084% respectively. The German 10-year bund yield was firmer at 0.1600%.

Many Asian equity markets are closed for the Lunar New Year holidays but those that were open were firmer: Nikkei (+0.46%) and the ASX 200 (+0.48%).

This morning’s performance in Asia follows a stronger performance in western markets last Friday; in the United States, the Dow Jones Industrial Average closed up by 0.26% at 25,063.89, and in Europe, the Euro Stoxx 50 closed up 0.37% at 3,171.12. 

The dollar index has rebounded after the weakness seen following the dovish US Federal Reserve comments on January 30 – it was recently quoted at 95.72, and as the dollar has strengthened the other major currencies we follow have pulled back to consolidate: the euro (1.1442), the yen (109.76), the Australian dollar (0.7235) and sterling (1.3074). 

On the economic agenda this morning there is data on Spanish unemployment, EU Sentix investor confidence, UK construction purchasing managers’ index (PMI), EU producer price index (PPI), Italian consumer price index (CPI), with US releases that include factory orders and a loan officer’s survey. 

The base metals prices are trending higher, some more so than others with zinc, nickel and tin in the driving seats. Given the poor Chinese Caixin PMI data out last week it is surprising that prices have held their bullish tone – this suggests a degree of price robustness that bodes well for further strength, especially while US-China trade talks reportedly make some progress. For now, after the long drawn-out downtrends from the second half of last year, we may well see further gains with price gains also encouraging some restocking. 

In the precious metals, prices are consolidating after some strong gains of late and a slightly firmer dollar is probably applying some downward pressure. Although there is a lot of uncertainty around in the global economy, most of the issues have been around for a long time so there does not seem any urgent need for haven assets but the steady rise in gold prices since last October does suggest investors are preparing for rougher times ahead. With other asset prices on the rise, gold may start to face increased headwinds.

There will be no Metals Morning View on Tuesday, Wednesday and Thursday, due to travel commitments.

William Adams