METALS MORNING VIEW 04/01: Buying returns after a start-of-year pause

Palladium prices remain buoyant in high ground at $1,088.10 per oz, while the other precious metals are slightly weaker with losses of between 0.1% for gold ($1,309.56 per oz) and 0.3% for silver ($17.04 per oz). This follows a mixed performance on Wednesday with gold, silver and palladium off between 0.6% and 1%, while platinum prices closed up 0.6% at $949 per oz.

In line with the base metals, gold’s and silver’s price rally paused yesterday but underlying tails suggest buying is returning. We said yesterday that we should get a feel for how bullish underlying sentiment is by seeing how far the pullbacks go – it looks like they have been limited. Palladium’s rally continues, backed by fundamentals – prices have been as high as $1,098.50 per oz, not far off the high in January 2001 of $1,110 per oz.

Base metals traded on the London Metal Exchange are for the most part little changed this morning, Thursday January 4, apart from nickel and copper prices that are up by 0.8% and 0.6%, with the latter at $7,220 per tonne.

Volume has picked up with 9,663 lots traded as of 07:01 am London time.

This follows a diverse performance on Wednesday that saw copper, aluminium, nickel and zinc close down an average of 1.1%, while lead and tin prices closed up by 0.7% and 0.55% respectively.

On the Shanghai Futures Exchange today, the base metals complex is mixed – lead remains the main gainer with a +1% rise, followed by a 0.4% rise in copper prices to 55,180 yuan ($8,489) per tonne, with zinc and tin prices little changed and aluminium and nickel prices down by 0.2%. Spot copper prices in Changjiang are little changed at 54,540-54,690 yuan per tonne and the LME/Shanghai copper arbitrage ratio stands at 7.64.

In other metals in China, iron ore prices are up by 0.5% at 543.50 yuan per tonne on the Dalian Commodity Exchange. On the SHFE, steel rebar prices are down by 1%, gold prices are down by 0.5% and silver prices are down by 0.7%.

In wider markets, spot Brent crude oil prices are 0.30% higher at $68.12 per barrel, the yield on US 10-year treasuries is at 2.46%, and the German 10-year bund yield is at 0.46%.

Equities are for the most part firmer, led by a 3.26% rebound in the Nikkei, it having been closed on Tuesday and Wednesday. The Shanghai CSI 300 is up by 0.42%, the ASX 200 is up by 0.11% and the Hang Seng up by 0.56%, while the Kospi is bucking the trend with 0.80% decline. This follows a positive performance in western markets on Wednesday, where in the United States the Dow Jones closed up by 0.40% at 24,922.68 and in Europe the Euro Stoxx 50 closed up by 0.56% at 3,509.88.

The dollar index, at 92.07, is consolidating after Tuesday’s dip to 91.75. Having broken support at 92.50 on Friday December 29, it suggests the index is now going to test the September 2017 low at 91.01. That said, with US treasury yields on the rise the dollar may not stay down for long. With the dollar consolidating, the currencies are looking mixed with the euro and yen consolidating at 1.2033 and 112.55 respectively, sterling slightly weaker at 1.3523 and the Australian dollar firmer at 0.7852(0.7817). The yuan at 6.4960 is looking stronger and renewed strength across the emerging currencies we follow suggests confidence with investors putting on risk.

The economic calendar is busy today – it contains services PMI data out across Asia, Europe and the US. Data already out shows Japan’s services PMI eased to 54 from 54.2 and China’s Caixin services PMI rising to 53.9 from 51.9. In addition to the PMI data out later, there is UK data on lending and M4 money supply, with US data also including Challenger job cuts, ADP non-farm employment change, initial jobless claims, natural gas storage and crude oil inventories. Also late yesterday US total vehicle sales data was released that showed sales of 17.9 million units, which was higher than the 17.5 million units in November.

After weakness and consolidation in the base metals in recent days, some signs of strength are emerging and with oil prices moving higher, emerging market currencies strengthening and equities strong, it does look as though risk-on is returning. As we said in yesterday’s Metals Morning View report, with the longer-term outlook positive the bull run may continue after this bout of consolidation, as traders anticipate stronger fundamentals down the road. We remain quietly bullish.

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