MORNING VIEW: LME base metals stronger as they take courage from US equities

Once again rises across a broad set of markets suggest traders were less worried about the fallout from the Wuhan coronavirus (2019-nCoV) this morning, Tuesday February 11.

  • LME base metals prices up by an average of 1.2%; SHFE base metals up by 0.7% on average.
  • China’s CSI 300 Index up by 1.2%.
  • Gold prices are consolidating and were recently quoted at $1,568 per oz.

Base metals
Three-month base metals prices on the London Metal Exchange were up across the board on Tuesday, led by a 2.4% gain in nickel to $13,230 per tonne and by a 1.4% rise in copper to $5,739 per tonne. Tin lagged with a 0.6% gain – see table below for more details.

Trading volumes have been above average again with 11,750 lots traded as at 5.47am London time, compared with 9,871 lots at a similar time on Monday morning.

In China, the most-traded base metals contracts on the Shanghai Futures Exchange were for the most part stronger, the exception being a 0.1% decline in April zinc, while the rest were up by an average of 0.9%. April nickel led the gains with a 1.5% increase, while April copper was up by 0.4% at 45,800 yuan ($6,554) per tonne.

The spot copper price in Changjiang was up by 0.1% at 45,320-45,420 yuan per tonne and the LME/Shanghai copper arbitrage ratio was at 7.98, compared with 8 on Monday. The ratio was around 7.88 before the Lunar New Year holiday.

Precious metals
Precious metals were mixed this morning, with the spot gold price off by 0.2% at $1,568.05 per oz, while the more industrial precious metals were up either side of 0.5%.

Wider markets
The yield on benchmark United States 10-year treasuries has weakened and was recently quoted at 1.57%, compared with 1.59% at a similar time on Monday. The German 10-year bund yield was slightly weaker too and was recently quoted at -0.41%, compared with -0.39% at a similar time on Monday. Given the strength in broader markets, it is surprising these yields are not firmer.

Asian equities were stronger this morning, with the Kospi up by 1%, the ASX 200 up by 0.61%, the Hang Seng up by 1.39% and China’s CSI 300 up by 1.24%.

The dollar index (98.87) is extending gains, fueled by the strong economic data of late, but its strength is weighing on other major currencies, with the yen (109.91), the euro (1.0910) and sterling (1.2916) all weaker, while strength in commodities is giving the Australian dollar (0.6713) some lift.

Key data
Economic data out on Tuesday includes a raft of data from the United Kingdom including: gross domestic product (GDP), manufacturing and industrial production, construction output, goods trade balance, index of services and business investment.

US data includes: small business index from the National Federation of Independent Business, job openings and mortgage delinquencies.

In addition, there are numerous central bankers speaking including European Central Bank president Christine Lagarde, US Federal Reserve chair Jerome Powell, Bank of England governor Mark Carney, UK Monetary Policy Committee member Jonathan Haskel and US Federal Open Market Committee members Randal Quarles and Neel Kashkari.

Today’s key themes and views
Bullishness in US equities, where the S&P 500 and Nasdaq closed at record highs, seems to have given investors something else to think about rather than the Wuhan coronavirus. As more businesses in China returned to work on Monday, after an extended holiday, there may be restocking to do in a climate where availability is low as transport is constrained. This could be providing some lift. But, given the demand shock China’s economy is bound to have and the fact that disrupted supply chains from China are already hitting some foreign manufacturing, it seems premature to get too bullish.

We expect choppy trading in the days and weeks ahead, until more is known about how big the demand shock will be.

Gold prices edged lower after sentiment in other markets turned more risk-on, but we expect prices will be well supported for now, until the Wuhan coronavirus is contained.