MORNING VIEW: Base metals prices slip as rally runs into resistance, dollar firms

Base metals prices were for the most part weaker during morning trading on Monday January 11, while the dollar was firmer in line with strong US treasury yields.

  • Asian-Pacific equities were mixed, while pre-market major western equity index futures were weaker

Base metals
Three-month base metals prices on the London Metal Exchange were for the most part weaker this morning, the exceptions were lead ($1,997.50 per tonne) and zinc ($2,811.50 per tonne) that were up by 0.1% and 0.4% respectively, while the rest of the complex was down by an average of 0.9%. Copper was down by 1.2% at $7,988 per tonne.

The most-traded base metals contracts on the Shanghai Futures Exchange were weaker across the board, with prices down by an average of 3%, led by a 4% fall in March nickel. February copper was down by 2.3% at 58,670 yuan ($9,059) per tonne.

Precious metals
Spot gold ($1,850.44 per oz) was up by 0.1%, while the other precious metals were down by an average of 0.9%.

Wider markets
The yield on US 10-year treasuries was recently quoted at 1.10%, compared with 1.09% at a similar time on Friday.

Asia Pacific equities were mixed: the ASX 200 (-0.9%), the CSI (-0.99%), the Nikkei (closed), the Kospi (-0.12%) and the Hang Seng (+0.11%).

Currencies
The US Dollar Index was firmer this morning and was recently quoted at 90.28, this after 89.91 at a similar time on Friday.

The other major currencies have pulled back from recent highs after the dollar has firmed: the euro (1.2199), the Australian dollar (0.7714), sterling (1.3501) and the yen (104.06).

Key data
Economic data already out on Monday showed China consumer price index climb by 0.2% month on month in December, after a 0.5% fall in November, and the producer price index fell by 0.4% in December, after a 1.5% fall in November.

Later there is data on EU investor confidence from Sentix and UK Monetary Policy Committee member Silvana Tenreyro and US Federal Open Market Committee (FOMC) member Raphael Bostic are scheduled to speak.

Today’s key themes and views

The base metals were off their highs this morning, this after having started to look a bit toppy on Friday. The firmer dollar may well be the catalyst for prompting some profit-taking. Sentiment has been extremely strong of late, but we were wondering how much more good news could be baked into these price levels, before some profit-taking/consolidation set in – so we are not surprised to see prices pullback.

We should now get an insight into how strong sentiment remains by seeing how far prices pullback.

Gold prices took a tumble on Friday, which suggested firmer yields and the stronger dollar had raised the opportunity cost of holding gold, while the markets may feel safer in the knowledge that a less maverick US president is taking the helm next week.


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