MORNING VIEW: Base metals prices mixed as broader markets weaken following Fed comments

With some clusters of Covid-19 infections emerging after the lifting of lockdowns, there is less hope that a ‘V’-shaped rebound is sustainable and as a result markets were on a back foot this morning, Thursday May 14, especially broader markets, while the base metals were consolidating.

  • Asian-Pacific and pre-market major western equity indices were weaker this morning.
  • Chinese finance minister Liu Kun calls for more fiscal policy, this could help underpin metals.
  • US Federal Reserve Chairman Jerome Powell warns of an extended period of weak economic growth, which has weighed on equities.

Base metals
Three-month base metals prices on the London Metal Exchange were for the most part higher, the exceptions were zinc that was down by 0.6% at $1,955 per tonne and tin that was untraded. The rest were up by between 0.2% and 0.3%, with copper up by 0.2% at $5,223 per tonne, which compares with $5,214.50 per tonne at a similar time on Wednesday – see table below for more details.

Volumes have been below average with 3,583 lots traded as of 6.14am London time, this compared with some 6,168 lots traded at a similar time on Wednesday morning. So price consolidation in light volume.

The most-traded base metals contracts on the Shanghai Futures Exchange were mixed this morning, with June lead and July zinc leading on the downside with drops of 1.2% and 1.3% respectively. July tin was off by 0.2%, while July aluminium led on the upside with a 0.7% rise, with July nickel up by 0.4% and copper up by 0.1% at 43,040 yuan ($6,068) per tonne.

Precious metals
Spot gold prices have moved higher over the past 24 hours with prices recently quoted at $1,713.41 per oz, this compared with $1,704.18 per oz at a similar time on Wednesday. Prices are still in their overall range trading consolidation pattern, albeit moving up toward the higher levels.

Platinum prices are stuck in a narrow sideways range, palladium prices are mid-range but look vulnerable, and silver is holding up at the higher levels of its sideways range.

Wider markets

In line with the more-risk-off feel to the market, the yield on benchmark US 10-year treasuries is holding nearer the lower levels of its recent range, it was recently quoted at 0.63% – the range since last week has been 0.61-0.71%.

Asian-Pacific equities were weaker this morning: the Nikkei (-1.47%), China’s CSI 300 (-0.85%), the ASX 200 (-1.42%), the Kospi (-1.2%) and the Hang Seng (-1.39%). This weakness follows a 2.17% fall in the Dow Jones Industrial Average on Wednesday which closed at 23,247.97.

The US dollar index is edging higher toward 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 weaker this morning: the euro (1.0804), sterling (1.2192) and the Australian dollar (0.6429), the exception was the yen (106.79) that was rebounding. Resistance on the yen is at around 106.00.

Key data
Thursday’s key data includes German consumer price index and US initial jobless claims, the latter is expected to fall to 2.5 million, down from 3.17 million last week.

In addition, US Federal Open Market Committee member Neel Kashkari is speaking.

Today’s key themes and views
Given the weakness in equity markets in recent days, most of the base metals are holding up relatively well but with economies opening up and with demand weak, now may be the time when more governments introduce more fiscal measures to boost demand, which could prompt some restocking.

Given households and businesses have had their finances stretched their spending is likely to remain subdued, meaning governments may have to get the ball rolling first.

Gold prices are still rangebound and seem to be waiting for the next move. With risk-off easing in recent days and in this climate full of uncertainty, we still favor the upside in gold and investors’ interest in it may well pick up if they become more concerned about the sustainability of equity rebounds.