MORNING VIEW: Markets broadly mixed ahead of decisions from US Federal Reserve, Congress

Markets were for the most part consolidating this morning, Wednesday July 29, with base and precious metals prices mixed, albeit with the path of least resistance remaining to the upside.

Traders are having to weigh up the continuing spread of the Covid-19 virus across the United States and pockets of second waves in other major economies and some disappointing economic news, against the prospects for a dovish US Federal Reserve policy announcement this evening and the likelihood of Congress extending the pandemic relief efforts before too long.

  • Asian-Pacific equities were mixed this morning, as were major western pre-market equity futures indices.
  • Gold was recently quoted at $1,954.50 per oz, down from Tuesday’s high of $1,980.70 per oz.

Base metals
Three-month base metals prices on the London Metal Exchange were little changed this morning; tin was up by 0.4% at $18,090 per tonne, while the rest were ranged between being off by 0.2% and being up by 0.2%. Copper was off by 0.1% at $6,460 per tonne.

Volume has been light, with 3,850 lots traded as of 6.55am London time, this compared with an average of around 6,500 lots at a similar time across last week.

The most-traded base metals contracts on the Shanghai Futures Exchange were for the most part firmer, the exceptions being October nickel and tin that were down 0.6% and 0.1% respectively. September zinc and aluminium were both up by 1.5%, with September lead up by 0.7%, while September copper was up by 0.1% at 51,730 yuan ($7,388) per tonne.

Precious metals
Spot gold prices were up by 0.2% at $1,954.50 per oz this morning, compared with Tuesday’s close at $1,950.35 per oz.

Silver ($24.26 per oz) was up by 1%, platinum ($939 per oz) was down by 0.6% and palladium ($2,277.70 per oz) was down by 0.3%, compared with Tuesday’s closes. The gold/silver ratio remains around 1:80.

Wider markets
The yield on US 10-year treasuries was at 0.58% this morning – it is holding down in low ground, highlighting continued underlying stress and haven demand.

Asian-Pacific equities were mixed this morning: the Hang Seng (+0.3%), the CSI 300 (+2.3%), the Nikkei (-1.15%), the ASX 200 (-0.24%) and the Kospi (+0.27%).

The US dollar index is holding in low ground and was recently quoted at 93.53, the low was at 93.47 on Monday.

All the main currencies are firmer on the dollar weakness, with the euro (1.1753) consolidating in higher ground as was the Australian dollar (0.7175), while the yen (104.96) and sterling (1.2946) were pushing on with their advances.

Key data
Economic data already out on Wednesday showed Germany’s import prices rise by 0.6% month on month in June, up from a 0.3% gain in May. Out later there is a host of data from the United Kingdom on lending and M4 money supply, along with US releases on trade, wholesale inventories, pending home sales and crude oil inventories.

In addition, the US Federal Open Market Committee will announce its interest rate policy, provide a statement and hold a press conference, this evening.

Today’s key themes and views

Copper prices are consolidating in high ground, while aluminium, zinc, nickel and tin have been extending gains in recent days, while lead is rising but still below recent highs. All in all, the metals are holding up well, helped by the weaker dollar combined with the underlying support from supply disruptions and prospects for further stimulus in the US.

While the path of least resistance is to the upside, the market is vulnerable to bouts of profit-taking should broader markets undergo corrections, which does seem to be a risk given how much demand there is for havens and with the dollar weakness also suggesting changes are afoot.

The strength in gold highlights the concern some investors have about what lies ahead, but it also seems to be adjusting for different financial times ahead and that may well see the rally extend for a considerable time, especially with the opportunity cost of holding gold low now that bond and equity markets are as strong as they are.

The gold price may not be immune to profit-taking sell-offs along the way should other markets correct, but overall we expect the yellow metal’s repositioning to mean higher prices.