MORNING VIEW: Broad markets consolidating; metals hold up well but crosswinds prompt reassessments

• Asian-Pacific equity markets were mainly weaker this morning, as were pre-market major western equity index futures; the exception was China’s CSI 300 Index.
• Developing Asian countries to suffer worst growth for six decades, according to Asian Development Bank.

Base metals
Three-month base metals prices on the London Metal Exchange were mixed this morning with nickel ($12,905 per tonne) up by 0.7%, lead ($1,802.50 per tonne) up by 0.6% and tin ($16,875 per tonne) down by 0.3%, while the rest were little changed, with copper off by 0.1% at $5,789 per tonne. But overall prices are holding up well, with lead even extending its rebound-related gains this morning.

The most-traded base metals contracts on the Shanghai Futures Exchange were mainly firmer this morning; the exception was July aluminium that was down by 0.7%, while the rest of the complex was up by an average of 0.5% – led by a 1.1% gain in July lead. July copper was up by 0.4% at 46,970 yuan ($6,626) per tonne.

Precious metals
Spot gold prices were little changed this morning and were recently quoted at $1,727.89 per oz, this compared with $1,727 per oz at a similar time on Wednesday. Silver was up by 0.4% at $17.55 per oz, while platinum was down by 0.3% at $818.50 per oz and palladium was up by 1.3% at $1,944.90 per oz.

Wider markets
In line with the pause in risk-on sentiment today, the yield on the US 10-year treasuries has started to drift lower and was recently quoted at 0.72%, compared with 0.73% and 0.74% at similar times on Wednesday and Tuesday respectively.

Asian-Pacific equities were mixed, but mainly weaker, this morning: the ASX 200 (-0.92%), the Kospi (-0.03%), the Nikkei (-0.45%), the Hang Seng (-0.44%), with China’s CSI 300 (+0.57%) bucking the trend as the People’s Bank of China injected funds into the market.

Currencies
The US dollar is consolidating; it was recently quoted at 96.99, this after 96.90 at similar time on Wednesday.

With the dollar paused, most of the other major currencies have pulled back from recent higher levels: the euro (1.1255), the Australian dollar (0.6873) and sterling (1.2549), although the yen (106.91) is slightly firmer.

Key data
In terms of Thursday’s economic agenda, Italy will release trade data, the Bank of England will announce its monetary policy and the United States will release figures on the Philly Fed manufacturing index, initial jobless claims, leading indicators and natural gas storage.

In addition, Federal Open Market Committee member Loretta Mester is scheduled to speak.

Today’s key themes and views
Base metals prices are generally consolidating this morning and with the exception of lead are holding up well, suggesting sentiment remains upbeat. Talk from the physical market suggests demand is very subdued in the market ex-China.

Overall, we would say the risks still lie to the downside for now because we see the demand side of the equation as having been hit a lot harder than the supply side and we expect the demand recovery will be drawn out, and therefore the rebounds may have run ahead of themselves. That said, while Covid-19 spreads in those regions that have been unable to continue lockdowns, the chances of more production stoppages at mines suggests there is a supply risk too.

For now gold prices are consolidating below the $1,750-per-oz level and with equities generally buoyant, the opportunity cost of holding gold has climbed and that is likely to be acting as a headwind for gold, but if investors start to get concerned that equities have run ahead of themselves then another wave of rotation out of equities into havens may unfold.