MORNING VIEW: Markets consolidate now that more of them have regained their coronavirus losses

Markets were for the most part upbeat this morning, Friday August 21, with all of the base metals on the London Metal Exchange firmer, as were most Asian-Pacific equities, although they are firmer within consolidation patterns.

But after the accelerated gains at the start of the week, with the S&P 500 regaining all the losses suffered from the coronavirus hit and with the base metals now on average up by 0.5% from their January peaks, traders may need to take stock for a while.

  • Equity gains seem to have been driven more by lower yields than by earnings, but given recoveries will yields need to fall further?
  • Purchasing managers’ index (PMI) data out today may well provide cheer, but it may already be baked into the price gains.

Base metals
The three-month base metals prices on the LME were up across the board this morning, with gains averaging 0.6% and ranged between 0.4% for copper ($6,640.50 per tonne) and 0.8% for aluminium ($1,797 per tonne) and zinc ($2,501 per tonne).

The most-traded base metals contracts on the Shanghai Futures Exchange were mixed; September aluminium and October tin were both up by 0.2%, while October lead led on the downside with a 0.9% fall, with the other metals off between 0.2% for November nickel and 0.4% for October copper, which was recently at 52,100 yuan ($7,529) per tonne.

Precious metals
Spot precious metals prices were mixed with gold ($1,944.50 per oz) and silver (27.21 per oz) down by 0.2% and 0.6% respectively, while the platinum group metals were up by 0.2%.

Wider markets
The yield on US 10-year treasuries was at 0.65% this morning, this compared with 0.66% at a similar time on Thursday.

Asian-Pacific equities were mainly firmer this morning: the CSI 300 (+0.73%), the Hang Seng (+1.31%), the Nikkei (+0.23%) and the Kospi (+1.34%), while the ASX 200 (-0.14%) was lower.

The dollar index rebounded strongly on Wednesday and early Thursday, but started to lose ground later on Thursday and has seen follow-through weakness this morning. It was recently quoted at 92.67. The low on Monday was 92.12.

The other main currencies were generally firmer this morning: the euro (1.1868), the Australian dollar (0.7194), the yen (105.59) and sterling (1.3237).

Key data
Economic data already out on Friday showed the United Kingdom’s Gfk consumer confidence reading remained at -27 in August, unchanged from July’s reading, and retail sales in the country rose by 3.6% month on month in July, this after a 13.9% rise in June, but it was better than the 2% expected. Japan’s flash manufacturing PMI climbed to 46.6 in August, from 45.2 in July.

Data out later includes manufacturing and services PMI for France, Germany, the European Union, the UK and the United States.

In addition, there is data on UK industrial order expectations from the Confederation of British Industry, EU consumer confidence and US existing home sales.

Today’s key themes and views
The base metals are still consolidating after the recent show of strength, while production disruptions and restocking by China are underpinning the upward trends. The current economic climate may not justify these price levels at the moment, but the trends are strong.

Gold suffered another sharp sell-off on Wednesday and prices are still consolidating in choppy trading, suggesting dip-buyers and profit-takers are fairly equally matched. Given all markets look quite overextended there may well be room for markets to correct further as traders take stock.

(There will be no Morning View report next week.)

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