LIVE FUTURES REPORT 03/03: SHFE base metals prices extend rebound on hopes of G7 response to coronavirus outbreak

Base metals traded on the Shanghai Futures Exchange enjoyed more broad-based price gains during the morning trading session on Tuesday March 3, with risk sentiment buoyed by expectations of further stimulus measures to offset the negative economic impact of the novel coronavirus (2019-nCOV) outbreak.

The continued positivity in global markets comes ahead of scheduled talks between Group of Seven (G7) finance ministers and central bank chiefs later today to discuss concerted stimulus to limit the economic impact of the virus, which causes the disease known as Covid-19.

The United States Treasury confirmed in a statement on Monday that US Treasury Secretary Steven Mnuchin and US Federal Reserve chairman Jerome Powell “will lead a call with their G7 counterparts tomorrow morning”. The G7 includes Canada, Italy, France, Germany, Japan, the United Kingdom and the US.

“An impending round of fresh central bank easing is not going to make Covid-19 go away; indeed the more draconian and successful efforts at containing the spread of the virus are worldwide, the bigger will be the negative economic consequences,” Ray Attrill, head of foreign exchange strategy at the National Australia Bank, said in a morning note on Tuesday.

“But this thought is playing second fiddle so far this week to the prospect of yet more central bank largesse. This began yesterday with the Bank of Japan and should be quickly followed by 25-point cut to the cash rate from the [Reserve Bank of Australia] at 2:30pm ET today,” Attrill added.

Meanwhile, market participants widely expect a 50-basis-point cut at the US Federal Open Market Committee’s upcoming March 17-18 meeting. The CME FedWatch Tool is giving a 100% reading in terms of rate cut probabilities on March 18.

With markets seemingly more focused on central bankers’ response to the detrimental impact that the coronavirus is having on the global economy, and risk sentiment firmer as a result, base metals prices on the SHFE enjoyed a second consecutive positive morning session.

Copper was the outperformer of the complex, with its most-traded April contract rising to 45,600 yuan ($6,515) per tonne at the close of the morning session, up by 0.82% or 370 yuan per tonne from Tuesday’s close of 45,230 yuan per tonne.

Gains were also recorded across the rest of the complex: the June nickel and tin contracts rose by 0.76% and 0.80% to 103,260 yuan per tonne and 135,570 yuan per tonne respectively, while April aluminium rose by 0.26% to 13,290 yuan per tonne, April zinc ticked up by 0.15% to 16,185 yuan per tonne and April lead edged up by 0.07% to 14,650 yuan per tonne.

Other highlights

  • The dollar index, which gauges the strength of the US dollar against a basket of foreign currencies, was slightly up by 0.01% at 97.54 as at 11.57am Shanghai time. This is down from a peak of 99.91 on February 20.
  • The Shanghai Composite Index was up by 1.36% at 3,011.37 as at 11.30 am Shanghai time.
  • In data on Monday, Germany’s final manufacturing purchasing managers’ index (PMI) stood at 48.0 in February, better than the forecast 47.8. The UK’s final manufacturing PMI dipped to 51.7 last month, down slightly from 51.9 previously. The European Union’s final manufacturing PMI was slightly better than forecast at 49.2 – just exceeding the projected 49.1 print.
  • The US’ final manufacturing PMI stood at 50.7 in February, down from 50.8 previously.
  • Data of note scheduled for Tuesday includes the UK’s monetary policy report hearings and construction PMI and the EU’s consumer price index flash estimate and unemployment rate. There are also G7 meetings scheduled throughout the day.