MORNING VIEW: Base metals, oil and equities all lower while haven assets climb

Without fresh major stimulus announcements, markets have turned risk-off again this morning, Friday March 6.

Market participants had been expecting the People’s Bank of China to announce some further stimulus after the United States Federal Reserve’s emergency 50-basis-point rate cut on Tuesday, but nothing has been forthcoming.

The spread and impact of the novel coronavirus (2019-nCoV) across Italy, where 148 people have now died and with 53 new cases confirmed in the US, has once again put the focus back on the virus, rather than on the economic stimulus.

  • The spot gold price ($1,674 per oz) and US treasuries are on the rise, with record lows on 10- and 30-year treasury yields.
  • Asian equity indices are down across the board, led by a 2.81% fall in the Australian ASX 200 index.
  • Confirmed cases of the virus across China, in regions outside of Wuhan, are reportedly falling at a fast pace.

Base metals
The three-month base metals prices on the London Metal Exchange were down across the board by an average of 0.6% this morning, led by 1.2% fall in tin to $16,855 per tonne, while copper was down by 0.3% at $5,655.40 per tonne.

Overall though, most of the base metals are holding up above recent lows. Prices are on average down by 10.6% from their mid-January highs, at their lowest point the complex was down by an average of 13.4%.

The most-traded base metals contracts on the Shanghai Futures Exchange, were also down across the board this morning by an average of 0.4% – ranged between a 0.1% decline in June nickel and a 0.9% fall in May copper that was recently quoted at 45,090 yuan ($6,498) per tonne.

Precious metals
Precious metals were weak this morning, gold was down by 40 cents per oz at $1,674.07 per oz, while silver and palladium were both down by 0.6% and platinum was off by 1.3%.

The platinum group metals no doubt affected by continued weakness in Chinese passenger car sales that fell by 80% year on year in February, according to the China Passenger Car Association (CPCA).

Wider markets
The yield on benchmark US 10-year treasuries was recently quoted at 0.8102%, a fresh record low and the 30-year treasury yield was recently at 1.4247%, which was the first time it has been below 1.5%. Yields are falling because investors think the Federal Reserve will cut interest rates again at its meeting on March 18.

Asian equities were weaker across the board this morning: Nikkei (-2.72%), the Hang Seng (-2.34%), China’s CSI 300 (-1.62%), the Kospi (-2.16%), and the ASX 200 (-2.81%).

The rout in the US dollar resumed on Thursday and the index was recently at 96.56, the bottom of the range since February 20’s 99.91 high has extended to 96.46, from 96.92 previously.

The yen (105.94), the euro (1.1229) and sterling (1.2966) are climbing, while the Australian dollar (0.6613) is consolidating.

Key data
Friday’s economic agenda is busy; Japan’s leading indicators dropped to 90.3%, from 91.6%, but the data was for January, and German factory orders for January jumped by 5.5%, breaking three consecutive months of decline. Whether the jump was in anticipation of supply disruption, or due to optimism at the start of the year, is debatable.

Key data out later includes Italian retail sales for January, and US data on employment, the trade balance, wholesale inventories and consumer credit.

In addition, it is day two of the Organization of the Petroleum Exporting Countries (OPEC) meeting and US Federal Open Market Committee member John Williams is speaking.

Today’s key themes and views
For the most part the base metals are treading water with prices oscillating sideways, the main exception on the downside has been zinc that is trending lower, while on the upside is tin that has an upside bias.

We still think there is a risk that manufacturing in Europe and the US could still be disrupted if parts shortages impact production lines. Likewise, the spread of the virus itself could also affect factory output. But, a step-up in industrial activity in China as the country recovers should slowly start to boost confidence.

Gold prices are within reach of recent highs and with more negative fallout from the virus expected while it spreads through Europe and the US, haven demand for gold is likely to increase.