• Optimism remains high while the market focuses on vaccine-enabled and stimulus-driven recoveries
  • While complacency is a risk, the pent-up enthusiasm from a year of Covid-19 may last a long time
  • BHP raises its outlook, citing global population growth, the electrification thematic and the energy transition

Base metals
The LME three-month base metals prices were mixed with the individual metals ranged between being down by 0.6% for zinc ($2,827.50 per tonne) and up by 0.2% for tin ($24,440 per tonne). Copper was off by 0.2% at $8,381 per tonne, having earlier this morning set a fresh high at $8,437 per tonne – the highest it has been since May 2012.

Precious metals
Precious metals were firmer this morning, with spot gold and silver both up by 0.3% at $1,823.27 per oz and $27.65 per oz respectively, while the platinum group metals were up either side of 0.7%.

Wider markets
The yield on US 10-year treasuries was firmer this morning and was recently quoted at 1.23%, up from 1.21% at a similar time on Monday.

Asian-Pacific equities were firmer: the ASX 200 (+0.7%), the Nikkei (+1.28%), Hang Seng (+1.84%) and the Kospi (+0.52%).

Currencies
The US Dollar Index has found some support in low ground and was recently quoted at 90.35, compared with 90.28 at a similar time on Monday.

The other major currencies were mixed this morning: the euro (1.2131) and the Australian dollar (0.7776) were consolidating, sterling (1.3918) was strong, but the yen (105.50) was weaker.

Key data
Data already out on Tuesday showed Japan’s tertiary industry activity fell by 0.4% month on month in December 2020, after a 0.6% fall in the prior month.

Out later, there is a barrage of data from Europe and the United States including the Italian trade balance, EU employment change, EU gross domestic product, EU and German economic sentiment from the Zentrum fur Europaische Wirtschaftsforschung (ZEW), UK leading indicators, with US data on Empire State manufacturing and Treasury International Capital (TIC) long-term purchases.

In addition, US Federal Open Market Committee members Mary Daly and Michelle Bowman are scheduled to speak and there are Economic and Financial Affairs Council (Ecofin) meetings.

Today’s key themes and views
The metals continue to look strong and if they hold on to their gains until China returns on Thursday, then Chinese traders may need to play catch-up, which could add extra momentum.

Expectations for stronger demand on the back of economic recovery and infrastructure spending are driving prices and the potential headwind brought about by the shortage of semiconductors, has not proved too strong yet. While we think we are in an infrastructure and electrification-charged super-cycle, we should also keep in mind that prices tend not to go up in straight lines.

Gold prices remain within their sideways-to-down channel; the more industrial precious metals are looking stronger, but if inflation fears gather pace, then there should be room for gold to advance too.