MORNING VIEW: Base metals prices firmer amid strength in broader markets in Asia

Asian equities markets were stronger this morning, Monday July 6, and that has helped drive gains averaging 0.8% across the three-month bases metals prices on London Metal Exchange.

But the strength in markets is happening despite many headwinds with the out-of-control spread of Covid-19 in the United States and other parts of South America and while US-China relations are deteriorating.

  • Germany’s Ifo Institute reports one fifth of German companies believe their survival is threatened by the coronavirus crisis.
  • Germany factory orders rebounded by 10.4% month on month in May, after a 26.2% fall in April, but were expected to rise 15.1%.
  • Top six countries with the highest number of Covid-19 cases are the US, Brazil, Russia, India, Peru and Chile – all major metal-producing countries.

Base metals
Three-month base metals prices on the LME were up across the board this morning, with nickel leading the way with a 1.8% gain to $13,205 per tonne and copper in second place with a 1% gain to $6,073 per tonne. Nickel has now stolen the lead from copper as the metal pushing the limits to the upside.

The most-traded base metals contracts on the Shanghai Futures Exchange were mixed this morning; August copper and lead were both down by 0.2%, with the former at 49,050 yuan ($6,936) per tonne, while the rest were up by an average of 1.3% – led by a 2.7% gain in October nickel.

Precious metals
Spot gold prices were down by 0.1% this morning at $1,773.08 per tonne – the high so far has been $1,789.20 per oz, seen on July 1. Silver ($18.02 per oz), platinum ($812.50 per oz) and palladium ($1,921 per oz) were holding within their sideways trading patterns this morning.

Wider markets
The yield on US 10-year treasuries was at 0.69% this morning, up from 0.67% at a similar time on Friday.

Asian-Pacific equities were mixed this morning, with some Asian markets up considerably: the CSI 300 (+5.31%), the Hang Seng (+3.4%), the Nikkei (+1.83%) and the Kospi (+1.61%), while Australia’s ASX 200 (-0.71%) was weaker after the state of Victoria reported a jump in Covid-19 cases.

The US dollar index was weaker this morning; it was recently quoted at 96.91, this after 97.22 at a similar time on Friday. There is still a danger that the dollar’s consolidation is mapping out a half-way bearish flag on the charts.

With the dollar weaker, the other major currencies were for the most part firmer: sterling (1.2494), the Australian dollar (0.6967) and the euro (1.1288), but the yen (107.69) is slightly weaker.

Key data
Monday’s key economic data includes: Sentix Investor confidence and retail sales from the European Union, the United Kingdom’s construction purchasing managers index (PMI), UK housing equity withdrawal and the US’ final services PMI and ISM non-manufacturing PMI.

Today’s key themes and views
While the spread of Covid-19 continues in a number of metal-mining countries there is still risk that supply will be disrupted more, and that combined with optimism for economic rebounds seems to be driving the metals higher. Our concern is that the demand damage may be being underestimated and as such, we would be wary about whether the market can hold on to recent gains. But for now sentiment seems to remain positive and while that is the cased the path of least resistance seems to be to the upside.

Gold prices pulled back on July 2, but then rebounded and they have since been consolidating just below recent highs. With the rapid spread of Covid-19 in the US and in some other countries, raised geopolitical tension between the US and China, combined with the global damage that the pandemic is causing, we expect gold prices will remain underpinned.