MORNING VIEW: Base metals and broader markets firmer as risk-on returns, but gold also stronger

The base metals on the London Metal Exchange are up across the board, all the base metals with the exception of July nickel are up on the Shanghai Futures Exchange and Asian-Pacific and pre-market major western equity indices were firmer this morning too. But gold is also pushing higher, which suggests concerns are also running high.

• Japan’s economy fell into recession for the first time in four years, with gross domestic product falling by 0.9% in the first quarter after 1.6% fall the fourth quarter last year.
• Gold prices at $1,763.70 per oz are up some $60 per oz, from a similar time a week ago.

Base metals

Three-month base metals prices on the LME were up by an average of 1.1% this morning, with all the metals up between 0.8% for aluminium ($1,472 per tonne) and 1.4% for nickel ($11,985 per tonne).

The most-traded base metals contracts on the Shanghai Futures Exchange were mixed this morning, July nickel was off by 0.4%, while the rest were up by an average of 1.1%, led by a 1.4% increase in July zinc, while July copper was up by 0.7% at 43,090 yuan ($6,056) per tonne.

Precious metals

Spot gold prices have continued to push higher and were recently quoted at $1,763.71 per oz, having earlier set a high at 1,764.55 per oz – a level not seen since October 2012 when prices were attempting to challenge the highs at $1,921 from September 2011.

Spot silver prices are following gold’s lead and were recently quoted at $17.27 per oz, but prices are still well below last year’s peak of $19.65. The gold/silver ratio has fallen back to 1:102, having been over 1:120 in March.

Platinum has been very volatile so far today, suggesting trading is thin. It was recently quoted at $776 per oz and palladium was recently quoted at $1,991 per oz.

Wider markets

The yield on benchmark US 10-year treasuries is holding mid-range. It was recently quoted at 0.65%; the range in recent weeks has been 0.61-0.71%.

Asian-Pacific equities were stronger this morning: the Nikkei (0.48%), China’s CSI 300 (0.23%), the ASX 200 (1.03%), the Kospi (0.51%) and the Hang Seng (0.26%).

Currencies

The US dollar index is holding up near the top of its recent range. It was recently quoted at 100.33; the range since the start of April being 98.54-100.87.

The other major currencies we follow were mainly consolidating within recent ranges this morning: the euro (1.0821), the Australian dollar (0.6444) and the yen (107.22), although sterling (1.2106) is weaker.

Key data

In addition to Japan’s GDP data, its tertiary industry activity indicator fell by 4.2% in March, after a 0.7% decline in February. Data out later includes a German Bundesbank monthly report, UK leading indicators from the Conference Board and US a housing market index from the National Association of Home Builders.

In addition, UK Monetary policy Committee member Silvana Tenreyro is speaking.

Today’s key themes and views

The metals are looking mixed. After consolidating last week, support appears to have been found and this morning the metals are trying higher, led by copper that looks well placed to push higher, while aluminium looks the weakest. As economies start opening up and with demand weak, now may be the time when various governments introduce more fiscal measures to boost demand, which could prompt some restocking.

We have been favoring the upside on gold in this climate full of uncertainty and that seems to be unfolding now.