METALS MORNING VIEW - Risk-off seen across metals, markets nervous about central banks' next direction

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William Adamswilliam.adams@fastmarkets.comHead of Research+44 (0)20 7264 2489

London 12/09/2016 - Base metals were for the most part weaker on Friday along with markets generally as there was a pick-up in concerns about whether central banks were losing the appetite for quantitative easing – this led to equities and bonds falling. The base metals closed down an average of 0.8 percent, with nickel the only metal rising, it closed up 0.6 percent at $10,355, while the rest were down between 0.7 percent for copper at $4,630.50 and 1.6 percent for tin. Precious metals were lower too on Friday, with gold prices off 0.8 percent at $1,327.70 and silver dropped three percent to $19.04.

This morning, the base metals are lower across the board with prices down an average of one percent, tin and aluminium are off 0.2 percent while nickel is off 2.8 percent at $10,070. Volume has picked up with 10,055 lots traded. The pick-up in volume and weaker directions bodes ill.

Precious metals are mixed this morning, gold prices are up slightly at $1,328.90 and palladium is off 0.1 percent, while silver and platinum are off 0.4 percent.

In Shanghai, the base metals are lower across the board by an average of 1.5 percent, led by 2.4 percent declines in tin and nickel, lead and zinc are off around 1.5 percent , aluminium is off 0.4 percent and copper is down 0.8 percent at Rmb 36,320. Spot copper in Changjiang is down 0.5 percent at Rmb 36,430-36,630, the spread has moved out to a backwardation equivalent to some $46 per tonne, while the LME/Shanghai copper arb is at 7.89, which should mean the arb window is open for some traders.

In other markets in China, iron ore futures continue to retreat they are down two percent this morning, steel rebar is off 1.9 percent, silver is down 2.9 percent and gold prices are off 1.9 percent. As such, it does look as though the risk-off theme is moving round the globe.

Equities weakened on Friday, the Euro Stoxx 50 and Dow closed off one percent and 2.1 percent respectively and Asia is weaker this morning with the Nikkei down 1.9 percent, the Hang Seng is off 2.7 percent, the CSI 300 is down two percent, the ASX 200 and Kospi are  off 2.1 percent.

While there appears to be a broad market retreat that shows widespread risk-off, the major currencies for now are fairly quiet – this perhaps because markets across countries are all weakening together. The dollar is slightly firmer at 95.25, the sterling is at 1.3280, the euro is flat at 1.1240, as is the yen at 102.50, although the aussie is weaker at 0.7533. That said, the yuan is weak at 6.6773 and all the emerging market currencies we follow are weaker – as a barometer that also suggests the markets are becoming more risk-off.

The economic calendar is fairly quiet – Japan's PPI dropped 3.6 percent, other Japanese data on machine and tool orders data was mixed. Later we get Italian unemployment rate and UK leading indicators. FOMC member Lael Brainard is speaking this evening, whether she remains dovish, or adopts a more hawkish stance as other members have, will be carefully watched – see table below for more details.

The metals are weaker this morning with copper's attempt to rebound last week stalling and prices the lowest they have been since June and all the base metals have given up on their attempts to rebound and are pointing downwards now. With emerging market currencies turning weaker as well, it does look as though we are in for a deeper correction, but this is being driven more by uncertainty over what central banks’ policy is going to be going forward, rather than as a result of economic performance.

The precious metals are pulling back too, again this suggests broad based risk reduction. We wonder whether in the case of gold, a bullish secondary reaction will follow as risk reduction is followed by safe-haven buying.

 

Overnight Performance
BST 06:34 +/- +/- % Lots
Cu 4604 -27 -0.6% 3918
Al 1572 -3.5 -0.2% 1231
Ni 10070 -285 -2.8% 1886
Zn 2268.5 -23.5 -1.0% 2737
Pb 1876.5 -21 -1.1% 221
Sn 19200 -40 -0.2% 62
  Average   -1.0%       10,055
Gold 1328.92 1.22 0.1%  
Silver 18.961 -0.074 -0.4%  
Platinum 1055.7 -4.3 -0.4%  
Palladium 672.5 -0.5 -0.1%  
  Average PM   -0.2%  

 

SHFE Prices 06:33 BST RMB Change % Change
Cu 36320 -300 -0.8%
AL  11990 -45 -0.4%
Zn 17805 -290 -1.6%
Pb 13970 -200 -1.4%
Ni 79270 -1950 -2.4%
Sn 124380 -3010 -2.4%
Average change (base metals) 0   -1.5%
Rebar 2281 -43 -1.9%
Au 287.05 -2.15 -0.7%
Ag 4244 -128 -2.9%

 

Economic Agenda
BST Country Data Actual Expected Previous
12:50am Japan
Core Machinery Orders m/m
4.9% -2.8% 8.3%
12:50am Japan
PPI y/y
-3.6% -3.5% -3.9%
 7:00am Japan
Prelim Machine Tool Orders y/y
    -19.7%
9:00am Italian
Italian Quarterly Unemployment Rate
  11.5% 11.6%
2:30pm UK
CB Leading Index m/m
    -0.3%
6:00pm US 
FOMC Member Brainard Speaks
     
6:01pm US 
10-y Bond Auction
    1.50|2.4


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