MORNING VIEW: Base metals prices up across the board on hopes for easier monetary policy

After strong rallies in US equities at the start of the week that saw the Down Jones Industrial Average (DJIA) close up by 5.09%, markets are getting some comfort this morning from the prospect of easier monetary policy, which is helping them keep the negative impacts from the novel coronavirus (2019-nCoV) in the background.

  • Most Asian equity markets are stronger this morning, but have not been as positive at the DJIA was on Monday.
  • Market hoping for Group of Seven (G7) finance ministers and central bankers to make a coordinated response to the coronavirus, but some doubt emerges whether they will deliver.

Base metals

The three-month base metals prices on the London Metal Exchange were up across the board for the second day running this morning, Tuesday March 3, with an average increase of 0.4% as at 5.52am London time. This comes after an average gain of 1.4% at a similar time on Monday.

Tin led the advance this morning with a 1.1% rise to $16,765 per tonne, followed by a 0.7% gain in zinc to $2,039.50 per tonne, while the rest were up between 0.1% and 0.2%, with copper up by 0.1% at $5,729.50 per tonne.

Trading volume remains relatively high, with 9,943 lots traded as at 5.52am London time, but is down from the 12,553 lots traded at a similar time on Monday.

The most-traded base metals contracts on the Shanghai Futures Exchange were stronger by an average of 0.9%, led by gains of between 1.2% and 1.4% in April copper, April nickel and June tin, with the former up by 1.2% at 45,540 yuan ($6,506) per tonne. The rest were up by an average of 0.5%.

The spot copper price in Changjiang was up by 1.3% at 45,310-45,380 yuan per tonne, while the LME/Shanghai copper arbitrage ratio was at 7.94, compared with 8.02 on February 28, suggesting LME copper prices are rising more than SHFE prices.

Precious metals
Gold prices are firmer this morning with the spot gold price up by 0.3% at $1,596.28 per oz, this after February 28’s low of $1,565.30 per oz. Having undergone a significant correction last week, we wait to see if the lower prices start to attract bargain-hunting again.

Wider markets

The yield on benchmark US 10-year treasuries was recently quoted at 1.12%, this after Monday’s record low of 1.0347%.

Asian equities were mixed this morning: Nikkei (-1.22%), the Hang Seng (-0.11%), China’s CSI 300 (+0.07%), the Kospi (+0.58%), and the ASX 200 (+0.69%).


Weaker treasury yields are weighing on the dollar, with the dollar index recently quoted at 97.45, compared with a peak on February 20 of 99.91, Monday’s low was 97.18.

The other major currencies we follow are generally firmer after the dollar has weakened: the euro (1.1145), the yen (107.86) and the Australian dollar (0.6543), the exception is sterling (1.2790) that is weaker.

Key data
Tuesday’s economic agenda is busy with unemployment data out across Europe, a monetary policy report hearing in the United Kingdom, along with UK construction purchasing managers index (PMI) data and European Union consumer and producer price index data. US data includes economic optimism from Investor’s Business Daily (IBD)/TechnoMetrica Institute of Policy and Politics (TIPP) and total vehicle sales data from Wards.

In addition, there are Group of Seven (G7) meetings scheduled throughout the day and US Federal Open Market Committee member Loretta Mester is speaking.

Today’s key themes and views
After strong rebounds on Monday and follow-through strength earlier this morning, the LME base metals are giving back some of their early gains. Given the poor manufacturing PMI data out of China in recent days, it was odd for the metals to rebound as much as they did, as the data bodes ill for metal demand.

We expect manufacturing will rebound while China’s economy recovers, but if household and business demand is slow to recover then manufacturing utilization rates are likely to remain low, all of which will show up in weak demand.

Given the time delays between when exports in China were first disrupted and when shipments stop arriving at destinations, we expect the hit to manufacturing around the world still lies ahead and that will further damage demand. As such, we expect any rebound to be limited.

As is often the case, gold’s initial reaction to an event is knee-jerk and in line with what one would expect, it then suffers long liquidation while investors need to raise cash for margin calls with the third reaction then back in line with what you would expect once the distressed selling has run its course.

We would not be surprised if gold starts to pick up again now as concerns grow with the virus spreading deeper into the sixty or so countries that now report having confirmed cases of the virus.