Market and product

The base metals ended Tuesday mixed with lead down 1.1 percent, aluminium off 0.3 percent and copper was off 0.1 percent, while tin closed up 0.4 percent, nickel was up 0.3 percent and zinc was unchanged. Precious metals were also mixed, with palladium prices closing down one percent at $582, while gold prices were up 0.4 percent at $1,280.40, silver was up 0.6 percent and platinum was up 0.2 percent.

This morning, the base metals are down across the board, with the exception of lead that is little changed, the others are off between 0.2 percent for tin and 0.7 percent for nickel. Copper is off 0.5 percent at $4,617. Volumes picked up to 5,257 lots, which is an average for this time of day, up from around 2,400 lots this time yesterday.

Precious metals are off an average of 0.4 percent this morning, silver is down 0.8 percent, platinum and gold prices are down 0.4 percent, with gold at $1,275.30, while palladium is little changed.

In Shanghai, the base metals are down an average of 0.5 percent, led by a one percent fall in copper to Rmb 35,410, spot copper in Changjiang is moving the other way with a 0.3 percent gain, which has created a backwardation equivalent of some $60 percent, while the LME/Shanghai copper arb ratio has edged out to 7.66, which means the arb window may be open for some traders. The divergence in the copper prices may well indicate profit-taking, or fresh shorting.

In other markets in China, iron ore prices rebounded 3.4 percent yesterday to $55.70, steel rebar is up 0.1 percent this morning, gold prices are off 0.1 percent and silver is down 0.3 percent.

Equities were weaker yesterday with the Euro Stoxx 50 and Dow closing down 0.5 and one percent respectively, this morning the Nikkei is off 0.6 percent, the Hang Seng is off 1.7 percent, the CSI 300 is off 1.4 percent, the ASX200 is off 0.7 percent and the Kospi is down 0.8 percent. Concerns that the Fed may raise rates sooner rather than later are affecting the markets today.

In FX – better US price data and some hawkish talk from FOMC officials is underpinning a stronger dollar with the dollar index climbing to 94.79, up from the early May spike low of 91.91. Conversely currencies are under pressure with the euro at 1.1282, sterling at 1.4435, the yen at 109.26 and the aussie at 0.7284. Emerging market (EM) currencies remain weak with the yuan at 6.5273 and most EM currencies we follow are heading lower too, led by the rand at 15.6790.

Economic data out already shows a pick-up in Japan’s GDP to 0.4 percent, although GDP prices climbed 0.9 percent, which was lower than the 1.5 percent seen previously. Later we get UK employment data and leading indicators, EU CPI, US crude oil inventories and the FOMC Meeting Minutes. This evening, UK’s MPC member Andrew Haldane is speaking – see table below for more details.

Like last week, the early attempt to rebound has run into selling and prices are looking vulnerable again, so at best prices are testing recent lows as they try to hammer out a base, at worse they will continue to correct. Poor Chinese data out of late, combined with a more hawkish outlook for US interest rates and corresponding firmer dollar, could weigh on prices. We are not bearish overall, but would not be surprised to see prices consolidate at lower for a while. Lead and zinc should be in the spotlight with the release of the latest ILZSG data later today.

Gold prices continue to consolidate as are silver and the PGMs. With metals generally looking vulnerable, we would not be surprised to see prices correct further, especially if the dollar continues to rebound. The danger remains that weaker gold and silver prices could prompt profit-taking by the funds.