MORNING VIEW: Broader markets run out of steam, how well will they hold up?

Markets were mixed across the board this morning, Friday July 17, while traders consolidate recent gains - key will be how well prices manage to hold up.

The base metals traded on the London Metal Exchange were all down, but only by an average of 0.3%, while the base metals on the Shanghai Futures Exchange were mixed, but down by an average of 0.2%

  • An European Union summit is underway today to try to agree on a recovery fund…
  • …although there is disagreement among members.

Base metals
The LME three-month aluminium price led the rest of its complex lower this morning with a 0.6% drop to $1,658.50 per tonne, while tin was the down the least with a 0.1% decline to $17,325 per tonne. Copper was off by 0.2% at $6,400 per tonne. Overall, the base metals were either drifting lower or consolidating after recent weakness – the exception was tin that is holding just below recent highs.

The most-traded base metals contracts on the SHFE were generally mixed, with August zinc rising the most with a 0.5% gain, while the August contract of sister metal lead was down the most with a 0.9% drop. August copper was up by 0.1% at 51,330 yuan ($7,339) per tonne.

Precious metals
Spot gold prices were little changed this morning, compared with Thursday’s close; prices were recently quoted at $1,799.10 per oz, but this was down some $14 per oz from Thursday’s high. There appears to be considerable resistance on the chart between $1,813.50 and $1,818 per oz.

Silver ($19.02 per oz) was down by 0.7%, platinum ($827.50per oz) was up by 0.3% and palladium ($1,977.50 per oz) was down by 0.7%.

Wider markets
The yield on US 10-year treasuries was at 0.61% this morning – this is the weakest it has been for a while, implying a pick-up in risk-off.

Asian-Pacific equities were mainly firmer this morning: the Hang Seng (+0.59%), the CSI 300 (+0.62%), the Kospi (+0.8%) and Australia’s ASX 200 (+0.38%), the exception was the Nikkei (-0.32%).

The US dollar index tested its recent low on Thursday with a drop to 95.77, the low on June 10 was 95.71, but it has bounced off the lows and was recently quoted at 96.29.

The other major currencies were mainly weaker: the euro (1.1384), the Australian dollar (0.6983) and sterling (1.2550), although the yen (107.19) was slightly firmer.

Key data
Friday’s economic agenda contains data on EU consumer prices along with US releases that include housing starts, building permits and preliminary University of Michigan consumer sentiment and inflations expectations. But the main focus is likely to be on the EU summit and whether any progress is made in agreeing a deal on a recovery fund – there is room for disappointment.

Today’s key themes and views
The base metals have all put in strong upside runs in recent weeks, but some hesitation appeared on Tuesday and since then most of the metals have been edging lower in an orderly manner, although tin has managed to hold up well.

We wait to see if the halt in the rise turns into more of a sell-off. Even if it does, we expect dips will be supported because Covid-19 production disruptions, potential for Chinese stockpiling, promises of infrastructure spending and institutional investor access to cheap financing may be enough to offset the demand hit seen in recent months. But a pullback in equities due to earnings, could lead to some further weakness in the short term.

Gold prices once again pulled back on Thursday and the rebound in the dollar may have prompted that. While there is a danger that prices could pullback further if there is a correction in broader markets, we would expect dips to be short-lived and the overall bull market to continue given the state of uncertainty.