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Daily Base Metals Report

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U.S. data was mixed, as durable good orders reached 2.6% in November, up from 2.5% the month prior, the U.S. trade balance was -$80.2bn in November. We saw jobless claims tick marginally higher January 1st data at 207k and continuing claims edging higher to 1754k. Factory orders continued to grow at 1.6% in November, demand for transport equipment was solid at 6.5% and civilian aircraft at 34%. The Fed minutes confirmed their hawkishness which the market reached badly too and commodities, and stocks sold off as U.S. yields rallied. The dollar index continues to consolidate, but the U.S. 10 yr yield increased to 1.7352% today and broke the key resistance level we mentioned yesterday. Momentum is firmly on the upside and traders are nervous about inflation, but the hawkish Fed shouldn’t be a surprise.

Activity on the LME saw most metals weaken; copper declined and tested support at $9,467.5/t but has pushed back above $9,500/t. The cash to 3-month spread trades at $10/t back. Aluminium prices were steady after appetite for prices below $2,900/t kept upside momentum intact. Nickel edged lower, but selling pressure was weaker, and the market remains above $20,000/t. Lead was marginally strong today and closed at $2,307/t, but zinc was closed at $3,561/t. Rising inflationary pressures and a hawkish Fed could present downside to metals. However, as mentioned, the hawkish Fed should not be a surprise. When you look at previous tightening cycling, industrial metals perform well at the beginning of that cycle, usually due to higher consumption, but will end-user consumption be able to keep up this time? That depends on wages and the consumer propensity to spend, and we expect consumer spending to suffer in 2022.

Energy prices are on the front foot, with gas prices rising again and oil also pushing higher. European gas prices increased once again as Russia continued to limit exports. Brent and WTI gained ground, reaching $82.66/bl and $80.11/bl at writing. Silver sold off today and trades at $22.17/oz with gold at $1,789.07/oz.

All price data is from 06.01.2022 as of 17:15


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