MORNING VIEW: Broad markets tread water; metals hold up well, albeit in light volume

Needless to say the V-shaped recoveries in prices seem to be ignoring the current depressed state of demand and the forecasts for 2020.

• Asian-Pacific equity markets were mainly firmer this morning, while pre-market major western equity index futures were mixed and little changed.
• Market seems to be ignoring US President Donald Trump’s comments about decoupling from China.

Base metals
Three-month base metals prices on the London Metal Exchange were mixed this morning, the main movers were copper ($5,829 per tonne) and zinc ($2,053 per tonne) that were up by 0.5% and 0.3% respectively, while nickel ($12,875 per tonne) led on the downside, but was only down by 0.2%. The rest were ranged between plus and minus 0.1%. Overall prices are holding up well, with zinc looking well placed to follow lead’s recent push higher.

That said, volume on the LME has been light with just 2,587 lots traded as at 05.28am London time, this compared with an average at a similar time across last week of 6,500 lots.

The most-traded base metals contracts on the Shanghai Futures Exchange were mainly firmer this morning, the exception being August tin that was down by 0.7%. August copper led on the upside with a 1.1% gain to 47,260 yuan ($6,675) per tonne, followed by a 1% gain in August zinc, with July lead up by 0.6%. July aluminium and August nickel were both little changed.

Precious metals
Spot gold prices were little changed this morning and were recently quoted at $1,725.50 per oz, up from Thursday’s close of $1,723.50 per oz, but down from $1,727.89 per oz at a similar time on Thursday morning. The other precious metals were up by an average of 0.2% from Thursday’s close.

Wider markets
In line with the pause in risk-on sentiment today, the yield on the US 10-year treasuries continues to drift lower and was recently quoted at 0.7%, compared with 0.72%, 0.73% and 0.74% at similar times on Thursday, Wednesday and Tuesday respectively.

Asian-Pacific equities were mixed, this morning: the ASX 200 (-0.02%), the Kospi (-0.33%), the Hang Seng (-0.1%), the Nikkei (+0.5%) and China’s CSI 300 (+0.94%).

Currencies
The US dollar has been trending higher again; it was recently quoted at 97.37, this after a low of 95.71 from June 10.

The stronger dollar has weighed on most of the other major currencies: the euro (1.1214), the Australian dollar (0.6857) and sterling (1.2446), although the yen (106.80) is slightly firmer.

Key data
In terms of Friday’s economic agenda, data on the United Kingdom’s GfK consumer confidence index came in at -30, after -36 previously, and Japan’s consumer price index (CPI) fell by 0.2% in May, this was the second consecutive month of negative CPI.

Data out later includes Germany’s producer price index, UK retail sales, UK data on the public sector borrowing and the European Union’s and United States’ current accounts.

There is also an EU economic summit and Federal Open Market Committee member Randal Quarles and Federal Reserve chairman Jerome Powell are speaking.

Today’s key themes and views
Base metals prices are generally consolidating, with an upside bias, and are holding up well this morning. This seems at odds with the level of buying reported in the physical market and that raises concern that prices have run ahead of the fundamentals.

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.