MORNING VIEW: Markets mixed, metals on back footing

Markets were mixed across the board this morning, Monday July 20, with traders focused on the prospects for a recovery fund from the European Union, while the weak Japanese export data highlights the economic damage that Covid-19 has dealt.

  • Japan’s exports dropped by 26.2% year on year in June…
  • …auto exports to the United States were particularly hard hit.

Base metals
Three-month base metals prices on the London Metal Exchange were mixed this morning; nickel stood out with a 0.8% gain to $13,220 per tonne and zinc was down by 0.2% at $2,177 per tonne, while the rest were little changed with copper off by 0.1% at $6,432.50 per tonne.

The most-traded base metals contracts on the Shanghai Futures Exchange were mostly more active and generally weaker with the complex down by an average of 0.5%. August aluminium was the only one in positive territory, it was up by 1%, while August copper was down by 0.1% at 51,400 yuan ($7,350) per tonne and the rest were down by an average of 1%.

Precious metals
Spot gold prices were little changed this morning, compared with Friday’s close; prices were recently quoted at $1,810.30 per oz, but were up by some $10 per oz from where they were at a similar time on Friday morning. There appears to be considerable resistance on the chart between $1,813.50 and $1,818 per oz.

Silver ($19.31 per oz) was down by 0.1%, platinum ($839.70per oz) was up by 0.3% and palladium ($2,032.50 per oz) was up by 0.8%, compared with Friday’s closes.

Wider markets
The yield on US 10-year treasuries was at 0.62% this morning, compared with 0.61% at a similar time on Friday morning.

Asian-Pacific equities were mixed this morning: the Hang Seng (+0.14%), the CSI 300 (+2.82%) and the Nikkei (+0.09%), while the ASX 200 (-0.53%) and the Kospi (-0.14%) were weaker.

The US dollar index is testing support and was recently quoted at 95.97, the low on June 10 was 95.71. It is looking vulnerable, if it breaks lower then that could support the likes of gold.

The euro (1.1450) was gaining ground against the dollar, while the other major currencies were consolidating: the Australian dollar (0.6988), sterling (1.2561) and the yen (107.23).

Key data
Monday’s economic agenda is light, data out already showed Japanese exports disappointed on the downside as did German producer price index that was flat, having been expected to rise 0.2%.

There is a German Bundesbank monthly report out today and the EU economic summit has been extended so there can be more discussions on Monday.

In addition, UK Monetary Policy Committee members Andy Haldane and Silvana Tenreyro are speaking.

Today’s key themes and views
The base metals are drifting lower in a controlled manner after strong upside runs in recent weeks, which 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 prices once again pulled back on Thursday but rebounded on Friday and are now poised below resistance. With the dollar looking weaker, gold may well get another boost. We expect the bull market to continue given the state of uncertainty.




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