Monsters of Rock: Base metals on watch after US rate cut

Miners lift as rate cut brings hope for commodities
Reaction from traders in base metals including copper to really come through tonight
WA DomGas policy shift has Strike Energy and MinRes riding high

50bps, the non-word you’ve been waiting for, has finally arrived with Jerome Powell’s US Fed cutting rates for the first time since a hiking cycle began in March 2022.

That’s obviously good for gold, but probably baked in with prices already hitting record highs of US$2600/oz briefly ahead of last night’s announcement.

But it’s base metals that will be closely watched in trade tonight, given the LME was shut for the day when the Powell-driver hit markets.

Copper tip-toed 0.3% north yesterday to US$9401/t, while nickel was up similarly to US$16,233/t and aluminium 0.5% higher at US$2537/t.

Zinc was the outlier, down 1.4% to US$2886/t, while the heat came out of the precious metals with Powell’s commentary mild on the prospects of an aggressive cutting cycle.

“Copper led the base metal sector higher in the lead up to the FOMC meeting. However, with the London Metal Exchange closing before the announcement, markets were left to ponder what lowering borrowing costs will mean for the sector,” ANZ’s Catherine Birch, Brian Martin and Daniel Hynes said in a note this morning.

“The increase in the medium-term outlook for rates should come as a positive, with metals highly sensitive to factory activity and overall economic growth. US demand is likely to benefit from an improving property sector. US housing starts jumped 9.6% to a 1.36m annualised rate last month, the fastest since April.”

At the same time the response in the immediate aftermath was not all that predictable, with the dollar gaining and stocks pulling back.

Miners hit the accelerator

Capital.com senior financial market analyst Kyle Rodda said the ‘risk-off’ turn for capital markets showed what’s priced in by the market could be a steeper rate drop than Powell’s words indicated.

“There are two possible reasons why the markets may have turned risk-off following the decision,” he said.

“The decision to cut rates and aggressively lower the dots plots may have stoked fears about a severe economic slowdown, especially given Powell’s difficulty in forming a coherent narrative reconciling such rapid easing with reassurances that the labour market remains resilient.

“However, a look at the rates futures curve, another possible answer for why stocks dropped and the Dollar rebounded may be the fact the dot plots pointed to a flatter rates curve than what’s priced in.”

Regardless, it was a terrific day for materials stocks on the ASX, which lifted 2.3%. Energy rose 1.1%.

The biggest names on the bourse were in on the act, with iron ore prices rising 1.8% to US$92.35/t in Singapore as that and broader optimistic global economic feels sending Rio Tinto (ASX:RIO) up 3.5% and BHP (ASX:BHP) running 2.6% up.

Beaten and bruised battery metals stocks were also in the good books of investors, with Pilbara Minerals (ASX:PLS) rising along with Mineral Resources (ASX:MIN), which will also benefit from news the WA Government will remove prohibitions on international sales of onshore gas as it shops a stake in its Lockyer discovery.

Strike Energy (ASX:STX), Gina Rinehart’s partner at West Erregulla in the Perth Basin, was the biggest beneficiary, rising 9.76% to trade at a ~$650 million market cap.

ALS (ASX:ALQ) shares fell hard after the lab services stock blamed patchy mining business for a likely 5% drop in underlying NPAT in its next results in a thud of a trading update.

Lotus Resources (ASX:LOT) rose after putting early numbers on its 3Mlbpa Letlhakane uranium project in Botswana, which would cost US$465m to build and run at US$42/lb cash costs according to a scoping study but come after the restart of its Kayelekera project in Namibia.

Kayelekera is expected to be back up and running in 2025.