MORNING VIEW: Markets broadly mixed in line with geopolitical, economic crosswinds

Heightened diplomatic tensions between the United States and China, and their potential implications on the phase one trade deal struck between the two nations, were a headwind for the base metals this morning, Thursday July 23. Meanwhile, more liquidity keeps underlying sentiment bullish, as do supply concerns.

  • Base metals have run into resistance; not so the precious metals, especially gold after it set fresh a high at $1,876 per oz.
  • All markets look vulnerable to a correction in equities.

Base metals
Three-month base metals prices on the London Metal Exchange were mixed this morning; nickel ($13,160 per tonne) and zinc ($2,219.50 per tonne) stood out with gains of 0.6% and 0.7% respectively, as did tin ($17,475 per tonne) with a 0.6% fall. The rest were little changed, with copper off by 0.2% at $6,465 per tonne - this after a high of $6,633 per tonne on July 13.

The most-traded base metals contracts on the Shanghai Futures Exchange were mostly more active and weaker, with the complex down by an average of 1.1%. August aluminium was the only one in positive territory, it was up by 0.1%, while September copper was down by 1.5% at 51,650 yuan ($7,384) per tonne and the rest were down by an average of 1.4%.

Precious metals
Spot gold prices were up by 0.3% at $1,874.46 per oz this morning, compared with Wednesday’s close. Prices have now climbed over $200 per oz since early June.

Silver ($22.80 per oz) was down by 0.4%, platinum ($923 per oz) was down by 0.3% and palladium ($2,163.50 per oz) was up by 0.4%, compared with Wednesday’s closes. These more industrial precious metals have all started to play catch-up with gold this week, especially silver where the gold/silver ratio has dropped back to 1:82, compared with around 1:120 in March.

Wider markets
The yield on US 10-year treasuries was at 0.59% this morning, this is the lowest it has been for a while and highlights some underlying stress and haven demand, as does of course the strength in gold, but whether this turns out to be a warning alarm for equities remains to be seen. If it is, then base and precious metals may well suffer too if another dash-for-cash unfolds.

Asian-Pacific equities were mixed this morning: the Hang Seng (+0.65%), the CSI 300 (-0.19%), the Nikkei (closed), the ASX 200 (+0.32%) and the Kospi (-0.56%).

The US dollar index was trending lower and was recently quoted at 94.86, the low on June 10 was 95.71 but there may be some support on the chart around 94.60.

The euro (1.1585) and the Australian dollar (0.7155) are lapping up the dollar weakness, while the sterling (1.2727) and the yen (107.08) were stronger, but have not broken higher out of recent ranges yet.

Key data
Data already out on Thursday showed Germany’s GfK consumer climate index for July fall to -0.3, it was expected at -4.6 after being -9.4 in June. In April it was -23.4, while pre-Covid-19 it oscillated either side of 10.

Later there is data on the United Kingdom’s industrial order expectation from the Confederation of British Industry, US initial jobless claims, European Union consumer confidence and US leading indicators.

In addition, UK Monetary Policy Committee member Jonathan Haskel is speaking.

Today’s key themes and views
The base metals are consolidating, and as they do so most are drifting lower in a controlled manner. This is unsurprising after strong upside runs in recent weeks and suggests light profit-taking. The metal holding up the best is tin.

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 could lead to some further weakness in the short term.

Gold’s rally is looking meaningful as it has for a long time now and we expect the overall trend to march higher, but the market would not be immune to profit-taking sell-offs along the way should other markets correct.




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