MORNING VIEW: Continued fear in equities weighs on metals

The Dow Jones Industrial Average Index (DJIA) closed down by 5.9% on Wednesday, and in the pre-market this morning, Thursday March 12, the DJIA futures are down by around 4.4% - such is the continued fear in the market.

Base metals on the London Metal Exchange and on the Shanghai Futures Exchange were down across the board by an average of 1% and 1.7% respectively, as of 7:50am London time. 

  • Asian equity indices were lower, led by a 7.36% drop in Australia’s ASX 200. 
  • United States President Donald Trump bans travel from the European Union to US. 
  • The number of new confirmed novel coronavirus (2019-nCoV) cases across Europe and the US is increasing at an average rate of 33% a day, according to the FT.

Base metals
Three-month base metals prices on the London Metal Exchange were down across the board. Tin led the way with a 1.4% fall to $16,560 per tonne, followed by copper that was off by 1.3% at $5,433 per tonne – while the metals are weaker, they are not showing the same level of fear that equities are. One reason for this may be that metals were already subdued due to the US/China trade war and inventory levels along the supply chain were thought to be lean accordingly.

The most-traded base metals contracts on the Shanghai Futures Exchange were down across the board, led by a 2.8% fall in June nickel. May copper was down by 2.4% at 43.470 yuan ($6,221) per tonne.

Precious metals
Spot gold prices were down by 0.25% at $1,639.03 per oz this morning, this compares with $1,661.44 per oz yesterday morning – so it still seems as though gold is once again being sold to raise cash for margin calls against other assets. The more industrial precious metals remain under pressure.

Wider markets
The yield on benchmark US 10-year treasuries was recently quoted at 0.75%, this compares with 0.67% at a similar time on Wednesday – so the yield has not followed equities lower.

Asian equities were weaker this morning: Nikkei (-4.41%), the Hang Seng (-03.7%), China’s CSI 300 (-1.92%), the Kospi (-3.87%) and the ASX 200 (-7.36%).

The dollar index is consolidating and was recently quoted at 96.24 – the range since its peak in February being 94.63 and 99.9.

Out of the other major currencies we follow, the Australian dollar (0.6451) is weaker, as is sterling (1.2813), the euro (1.1309) is consolidating, while the yen (103.72) is strengthening.

Key data
Thursday’s key economic data includes Italian quarterly unemployment rate, EU industrial production, US producer price index, initial jobless claims and natural gas storage.

In addition, the European Central Bank will decide on interest rates, make a policy statement and hold a press conference.

Today’s key themes and views
Having held up relatively well in recent days, the base metals are showing further weakness this morning, which is unsurprising given the strong back-to-back falls in equities and the unprecedented travel bans imposed by the US. The latter further highlights how much damage is likely to be done to economic growth.

Stimulus measures may well provide some hope for a stronger rebound down the road, but it does look as though the outlook for demand will get worse before it gets better.

Overall, we would expect gold to head high again, once this latest batch of selling, to raise margin, has run its course.

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