MORNING VIEW: Broader markets start week on front foot; fresh supply disruption concerns underpinning the metals

Broader markets were upbeat this morning, Monday July 13, with Covid-19, weather-related supply disruptions and the threat of a labor strike at the Zaldivar copper mine in Chile driving sentiment.

  • US earnings seasons starts this week, so expect a pick-up in volatility…
  • …expectations are for bad results, but the market’s reaction will depend on how bad they are.

Base metals

Three-month base metals prices on the London Metal Exchange were up strongly across the board this morning with an average gain of 1.1% across the complex, led by a 2.7% rise in copper to $6,602 per tonne. The rise has occurred amid high volume, with 10,223 lots of copper traded by 6.13am London time. See table below for more details.

The most-traded base metals contracts on the Shanghai Futures Exchange were also up strongly with gains averaging 3%, led by a 5.4% rise in copper to 53,240 yuan ($7,602) per tonne. China’s metal prices are outperforming those on the LME because China’s economic recovery is running ahead of others and therefore is more likely to be affected by supply disruptions.

Precious metals
Spot gold prices were up by 0.6% this morning, compared with Friday’s close, and were recently quoted at $1,806.43 per oz – the fact prices are holding up well might well reflect nervousness going into US earnings season.

Silver ($18.93 per oz), platinum ($833.50 per oz) and palladium ($1,993 per oz) were all up around by 1.3%.

Wider markets
The yield on US 10-year treasuries was at 0.63% this morning, the weakest it has been for some time; at similar time a week ago it was at 0.69%. This also suggests a pick-up in market nervousness.

Asian-Pacific equities were stronger this morning: the Hang Seng (+1.14%), the Nikkei (+2.16%), the Kospi (+1.79%), the Australia’s ASX 200 (+0.98%) and the CSI 300 (+2.27%).

The US dollar index has resumed its downward trend this morning – it was recently quoted at 96.45. The yuan was holding on most of its recent gains this morning and was recently quoted at 6.9987.

The other major currencies were firmer: sterling (1.2654), the euro (1.1326), the Australian dollar (0.6974) and the yen (106.90).

Key data
Data already out on Monday showed Japan’s tertiary industrial activity fell by 2.1% month on month in May, this after a 7.7% decline in April, and German wholesale prices climbed by 0.6% month on month in June after a 0.6% decline in May.

Later, there is data on the US Federal Budget balance.

In addition, Bank of England governor Andrew Bailey and Federal Open Market Committee member John Williams are speaking.

Today’s key themes and views
The base metals have considerable upward momentum and that may well continue to carry them higher in the short term, especially because demand is recovering while more supply disruptions unfold. But given the demand hit that Covid-19 has caused, we are not sure whether these price levels are sustainable for long. The metals are likely to get more volatile once they are affected by equity market movements in reaction to US corporate earnings.

Gold prices are holding up in high ground but seem to be reflecting the current state of uncertainty well – dips continue to be well supported. We now wait to see whether the record high at $1,921 per oz from 2011 acts as a magnet.