MORNING VIEW: LME base metals mainly weaker as dollar rises, SHFE stronger

Base metals prices on the LME were mainly weaker this morning, Wednesday August 11, after average rebound gains of 1.4% on Tuesday, while SHFE base metals prices were mainly stronger in reaction to yesterday’s LME gains.

  • US Senate passes $1 trillion infrastructure bill, focused on the transport system
  • Wall Street set fresh record highs on Tuesday
  • US dollar strong and climbing and US treasury yields at one-month highs

Base metals
London Metal Exchange three-month base metal prices were mainly weaker on Wednesday morning, with the exceptions of aluminium, which was unchanged at $2,586 per tonne and tin, which was up by 0.4% at $35,190 per tonne. The rest were lower, down by an average of 0.5%, as they consolidated after Tuesday’s rebounds, which followed the weakness seen on Friday and Monday. Copper was down by 0.4% at $9,471 per tonne, with Wednesday’s support line at $9,234.

The passing of the US infrastructure bill bodes well for the base metals as the spending is focused on upgrading the US transport system. Some $550 billion will be spent on upgrading roads, bridges, tunnels, airports, rail networks and the power grid – all metal-intensive, no doubt.

The most-active base metals contracts on the Shanghai Futures Exchange were largely stronger this morning. The exception was September lead, which was down by 0.1%, while the rest were up by and average of 1.2%, led by a 2.4% rise in September tin and a 1.5% rise in September aluminium, while September copper was up by 0.8% at 69,800 yuan ($10,764) per tonne.

Precious metals

Spot gold and silver prices were still treading water this morning as they consolidate after Monday’s “flash crash”, with gold up by 0.2% at $1,731.93 per oz and silver up by 0.1% at $23.37 per oz. Platinum was up by 1% at $1,009 per oz and palladium was little changed at $2,650.40 per oz.

Wider markets
The yield on US 10-year treasuries has leapt higher and was recently at 1.37%, compared with 1.31% at a similar time on Tuesday – this after a low last week of around 1.15%. Today’s level is the highest the yield has been since July 13.

Asia-Pacific equities were mixed this morning: the Nikkei (+0.65%), the ASX 200 (+0.29%), the Hang Seng (-0.06%), the CSI 300 (-0.51%) and the Kospi (-0.7%).

Currencies
The US Dollar Index started to rebound on August 4 and accelerated higher on August 6 following the better-than-expected US employment report. It was most recently at 93.15, compared with 92.75 at a similar time on Monday. The multi-month high is close by at 93.19, which was set on July 21.

The major currencies were mainly weaker on Wednesday morning, on the back of the stronger dollar: sterling (1.3822), the Japanese yen (110.75) and the euro (1.1709), while the Australian dollar (0.7331) was treading water.

Key data
Economic data already out on Wednesday showed Japan’s M2 money stock was up 5.2% in July, compared with a 5.8% rise in June, Germany’s consumer prices index (CPI) was confirmed to have risen by 0.9% in July, compared with a 0.4% rise in June. Japan’s preliminary machine tool orders were up by 93.4% year on year in July, after a 96.6% rise in June and 140.7% gain in May.

Other key data out later includes US CPI, crude oil inventories and the US Federal budget balance.

In addition, Federal Open Market Committee member Raphael Bostic is scheduled to speak.

Wednesday’s key themes and views
Once again the metals have shrugged off recent weakness as seen by Tuesday’s rebounds off earlier lows, which suggests underlying sentiment is bullish – or at least not bearish. Lead and nickel experienced sharper sell-offs, but have also seen buying emerge, while aluminium and zinc prices continue to hold in high ground, while tin remains the strongest in the base metals complex due to being surrounded by supply disruptions at a time of strong demand. We are closely watching flagship copper as a potential head-and-shoulder pattern looms on the chart. That could signal weakness, but only if the pattern is triggered. Any weakness, however, may only be short-lived because the underlying long-term picture remains bullish.

After the extreme volatility in gold and silver prices on Monday, we expect the market will need time to adjust. The weaker gold price once again makes gold a cheaper haven should havens be needed. But with US equities pushing the envelope on the upside, and with bond yields climbing and the dollar strong, the opportunity cost of holding gold is rising.

The next Morning View is scheduled for August 25.

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