MORNING VIEW: Markets focused on coronavirus developments, less so on impact to supply chains

Equity markets remain buoyant in Asia, but pre-market western equity indices have started to weaken, while metals are mixed this morning, Thursday February 20.

It seems as though equities are focused on how well the novel coronavirus (2019-nCoV) is being contained, while the metals are taking a more cautious stance as they wait for the market to assess the impact on supply and demand. Indeed, given the length of some of the supply chains from China, the full economic impact may not emerge until deliveries from China to far-flung customers actually dry up.

  • China reported 114 new deaths from the virus by the end of Wednesday, the figure for Tuesday was 136, and there were 394 new cases, compared with 1,749 the previous day.
  • Nomura bank reported that the daily coal consumption at six major power plants in China was 42.5% below that at the same period last year.

Base metals
Three-month base metals prices on the London Metal Exchange were for the most part weaker this morning. Tin and nickel bucked the trend with 0.2% and 0.1% gains respectively, while the others were down by an average of 0.2%. Copper was off by 0.2% at $5,772 per tonne, this after a recent high of $5,828.50 per tonne on February 1 – see table below for more details.

Trading volume of 6,578 lots as at 5.39am London time is little changed from the 6,533 lots that had traded at a similar time on Wednesday.

The most-traded base metals contracts on the Shanghai Futures Exchange were also mostly weaker, the exception was June tin that was up by 0.1%, while the rest were down by an average of 0.2% – led by a 0.6% drop in April nickel, while April copper was off by 0.1% at 46,320 yuan ($6,618) per tonne.

The spot copper price in Changjiang was up by 20 yuan per tonne at 45,880-46,140 yuan per tonne, while the LME/Shanghai copper arbitrage ratio was at 8.03, compared with 8 on Wednesday.

Precious metals
Spot gold prices are buoyant and recently quoted at $1,609.13 per oz, Wednesday saw a high of $1,612.95 per oz, which was the highest since March 2013. The platinum group metals are consolidating recent strong gains and were off by 0.9% this morning.

Wider markets
The yield on benchmark United States 10-year treasuries is unchanged from Wednesday and was recently quoted at 1.56%, compared with 1.55% at a similar time on Tuesday. The German 10-year bund yield was weaker and was recently quoted at -0.42%, compared with -0.41% on Wednesday.

Asian equities were mixed this morning: Nikkei (+0.34%), China’s CSI 300 (+2.37%), the ASX 200 (+0.25%), the Kospi (-0.67%) and the Hang Seng (-0.19%).

The dollar index (99.76) continues to climb, driven by strong economic data and the US’ image as a safe-haven, it is now the highest it has been since May 2017. The euro (1.0791) is trending lower, which reflects the weak European Union economy, compared with a more robust US one.

Sterling (1.2903), the Australian dollar (0.6646) and the yen (111.52) are all weaker too as they retreat against the dollar.

Key data
Thursday’s economic agenda is busy – data out in Europe includes German GfK consumer climate and producer price index, French consumer price index, the United Kingdom’s retail sales and industrial order expectations, European Union consumer confidence and the release of the European Central Bank’s monetary policy meeting accounts.

US data includes the Philly Fed Manufacturing Index, initial jobless claims, leading indicators, natural gas storage and crude oil inventories.

Today’s key themes and views
Data showing that the spread of the novel coronavirus (NCOV-2019) may be slowing down is a positive that might fuel a recovery in sentiment, but equally it might prompt the market to focus on what the economic damage has been – and much of the damage may not yet have been caused as the supply disruptions may not have reached their destinations yet, given shipping times. For now the metal prices seem to be taking their cue from the equity markets, but do not seem in any hurry to become too directional. We expect more of the same until more is known about the level of disruption the virus is causing around the world.

Gold seems to be waving a warning flag as it move up to multi-year highs and the dollar seems to be saying the same, we wait to see if broader markets take note.