Written Commentary
BASE METALS
Copper: Copper prices on the LME and COMEX both rose, with LME copper was up 0.8% at $14,365 and US prices rose 1% to $6.62. Short-term support is coming from reduced expectations of an October rate hike from the Fed following Friday’s jobs report and August’s PCE inflation data last week. Meanwhile, a strike at Antofagasta’s Centinela copper mine is set to begin on October 13 if no agreement is reached. Meanwhile, supervisors at BHP’s Escondida copper mine in Chile, the world’s largest, have also rejected a contract offer. China is also in the midst of a week-long holiday, which has limited a key demand signal for copper.
For copper, stronger resistance from higher oil prices is starting to be felt. Higher oil prices are once again reigniting worries over potential hits to demand, creating a cautious tone. Meanwhile, signs of industrial weakness in China and an absence of a Chinese bid due to holiday are offering resistance to the upside. Recent factory activity data from China showed a modest recovery in growth, although future conditions are likely to be scrutinized for domestic demand signals. Heavy reliance on exports for the industrial sector raises risks to the outlook for copper as geopolitical uncertainty and rising trade frictions play a more dominant role.
Zinc: Zinc edged up 0.1% to $3,713.
Aluminum: Aluminum was up 0.6% to $3,117.
Tin: Tin gained 0.4% to $54,225.
Lead: Lead added 1.1% to $1,871.
Nickel: Nickel nudged up by 0.1% to $15,640.
PRECIOUS METALS
Gold: December gold contracts moved higher overnight despite a strong rise in the dollar. Fiscal concerns over France’s debt are raising demand for gold, which could offer the metal a slight tailwind despite higher interest rates and a stronger USD. Focus now centers around minutes of September’s Fed meeting, which is likely to help shape expectations around future monetary policy. Expectations of tightening this month eased sharply September’s nonfarm payrolls figures came in will below expectations and as the prior two months were revised sharply lower. The market is pricing an 18% probability of a Fed rate hike in October, though remain fully priced for a move higher in December.
For the Fed, September’s report, weak hiring, downward revisions, yet stable unemployment, labor utilization, and participation, argue against interpreting the data as evidence of a sharp deterioration in labor demand. The report should support policy patience and a somewhat easier front-end rates bias. Payrolls have historically underperformed when the Labor Day holiday falls late in the month, as was the case this year. Other labor data have shown no signs of a broad increase in layoffs. For the Fed, growth indicators remain robust, favoring their hawkish stance, though it is likely that policymakers will want to see how inflation trends play out making a rate hike more favorable in December/January.
Silver: December contracts are up 2.14% to $61.70.
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