MORNING VIEW: Base metals prices hold firm, most Asian equities weaker while China’s rally continues

With the exception of China’s CSI 300, Asian-Pacific equities and pre-market major western equity futures were weaker this morning, Tuesday July 7, while base metals prices on the London Metal Exchange were mixed, although in general were holding up well.

China’s equity markets are experiencing a retail investor rally that is being encouraged by state media - the market is up by almost 14% over the past five days of trading. Whether this boosts other equity markets or draws from them remains to be seen.

While equities seem to be turning a blind eye to the surge in the Covid-19 in the United States and in some other countries, the metals do seem to be underpinned by the spread of the virus into some major mining regions.

  • Japan’s household spending was down by 16.2% year on year in May, after an 11.1% fall in April.
  • German industrial production climbed by 7.8% month on month in May, after falling 17.9% in April, but it was expected to rebound 11%
  • Brazil vehicle production surged by 129% in June, compared with May, but was down 58% year on year.

Base metals

Three-month base metals prices on the LME were mixed this morning, but that is unsurprising given the strong gains that averaged 1.6% on Monday. Copper ($6,154.40 per tonne) and zinc ($2,039.50 per tonne) were up by 0.2% and 0.3% respectively, tin was unchanged, while aluminium, nickel and lead were down between 0.1% and 0.4% - see table below for more details.

The most-traded base metals contracts on the Shanghai Futures Exchange were mainly firmer with the complex up by an average of 0.5%, while prices caught up with Monday’s stronger performance on the LME. The main movers were August copper that was up by 1.2% at 49,480 yuan ($7,034) per tonne and October nickel that was up by 1.1%.

Precious metals
Spot gold prices were down by 0.2% this morning at $1,782.92 per oz, but seem to be in the process of challenging the multi-year high at $1,789.20 per oz, seen on July 1. Silver ($18.17 per oz) was off by 0.7% from Monday’s close – Monday saw another failed attempt to push through resistance that lies between $18.40 and $18.44. Platinum ($817.50 per oz) and palladium ($1,928.50 per oz) were holding within their sideways trading patterns this morning.

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

Asian-Pacific equities were mainly weaker: the Hang Seng (-0.51%), the Nikkei (-0.44%), the Kospi (-1.09%) and the Australia’s ASX 200 (-0.03%), while the CSI 300 (+1.75%) was firmer.

The US dollar index was rebounding this morning after showing weakness on Monday; it was recently quoted at 96.92, this after a low of 96.57 on Monday. There is still a danger that the dollar’s consolidation is mapping out a half-way bearish flag on the charts. Interestingly, the yuan has broken higher and was recently quoted at 7.0200, having moved through resistance around 7.0440.

With the dollar firmer, the other major currencies were consolidating recent gains: sterling (1.2483), the Australian dollar (0.6943), the euro (1.1293) and the yen (107.57).

Key data
Other key economic data due on Tuesday not mentioned above includes France’s trade balance, house prices from the United Kingdom, Italian retail sales, US economic optimism and US job openings.

In addition, Federal Open Market Committee member Randal Quarles is speaking.

Today’s key themes and views
The stronger tone in the LME base metals has paused today and with major western equities looking weaker this morning, the complex may well consolidate.

While the spread of Covid-19 continues in a number of metal-mining countries there is still risk that supply will be disrupted more, but given the demand damage that the pandemic is causing there is room for some supply disruption.

Underlying sentiment seems to be strong and unless that changes, the metals may well remain underpinned. Overall though, we are wary about whether the market can hold on to recent gains - they may well not if equities correct.

Gold prices are holding up in high ground and seem to be reflecting the current state of uncertainty well. 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 the uptrend to remain intact.




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