MORNING VIEW: Base metals prices mixed, broader markets consolidate while overall cross currents dominate

Hopes that the global economic engine fires up on the first attempt may be asking a lot given second waves of Covid-19 infections emerging, and the fact global leaders are not pulling together is not helping underlying sentiment this morning, Friday May 15, with US President Donald Trump at loggerheads with China.

On the economic front, data out of China supports our view that the supply side of the economic supply/demand equation will rebound faster than the demand side, and that may require more government stimulus to balance the equation.

  • Asian-Pacific and pre-market major western equity indices were mainly firmer this morning, this after a bounce in the Dow Jones Industrial Average on Thursday which closed up 1.6% at 23,625.34, 247.97, having at one stage been down 1.9%.
  • China’s industrial production climbed 3.9% in April, after a 1.1% decline in March and a 13.5% decline in February.
  • But China retail sales were still negative; they fell 7.5% in April, although that was better than the 15.8% and 20.5% falls in March and February respectively.

Base metals
Three-month base metals prices on the London Metal Exchange were for the most part higher, the exception was zinc that was down by 0.3% at $1,962 per tonne. The rest were up by between 0.1% for nickel ($12,065 per tonne) and 0.8% for copper ($5,255 per tonne) - see table below for more details.

The most-traded base metals contracts on the Shanghai Futures Exchange were mixed this morning, with the July contracts for nickel, tin and zinc down by 1.3%, 1% and 0.1% respectively, while the rest of the complex was up by an average of 0.6%, with July copper up by 0.4% at 43,010 yuan ($6,055) per tonne.

Precious metals
Spot gold prices have moved higher over the past 48 hours with prices recently quoted at $1,735.09 per oz, this compared with $1,713.41 and $1,704.18 at similar times on Thursday and Wednesday respectively. Prices are now approaching the April highs of between $1,738.75 and $1,747.25 per oz.

Spot silver prices have broken out of their sideways range and were recently quoted at $16.21 per oz, up 2.4% from Thursday’s close. Platinum and palladium prices are still stuck in narrow sideways ranges.

Wider markets
The yield on benchmark US 10-year treasuries is holding nearer the lower levels of its recent range, it was recently quoted at 0.62% - the range since last week has been 0.61-0.71%.

Asian-Pacific equities were stronger this morning: the Nikkei (0.78%), China’s CSI 300 (0.16%), the ASX 200 (1.11%), the Kospi (0.24%) and the Hang Seng (0.5%).

The US dollar index is holding up near the top of its recent range, it was recently quoted at 100.28, 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 (1.0807), sterling (1.2208), the Australian dollar (0.6450) and the yen (107.20).

Key data
Friday’s key data provided further insight into China’s economy, in addition to industrial production and retail sales mentioned above, China fixed asset investment in the year to date fell 10.3% in April, this after 16.1% and 24.5% falls in March and February. China’s unemployment rate climbed to 6% in April, from 5.9% in March and 6.2% in February.

Important data out in Europe includes gross domestic product data in German and the EU, German producer price index, French consumer price index and EU employment change. There is also a Eurogroup meeting.

US data includes: retail sales, the Empire State Manufacturing data, industrial production, capacity utilization rate, University of Michigan consumer sentiment and inflation expectations, job openings, business inventories and long term purchases of treasury international capital.

Today’s key themes and views
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. In the absence of that, base metals may struggle to push higher while economic data is likely to continue to highlight weak demand.

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

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