MORNING VIEW: Markets mixed with economies reopening a plus, while concerns over Trump’s policies are a headwind

Markets were mixed this morning, Tuesday June 2, with a slight upside bias overall; equities and metals were not showing any particular direction, with regional differences being seen too.

Asian-Pacific equities indices were stronger, as were pre-market major European equity index futures, while the pre-market US equity index futures were in negative territory and metals were mixed on a regional basis - generally higher in China and weaker on the London Metal Exchange.

  • Headwinds coming from US riots and the United States-China standoff that could jeopardize the global recovery.
  • People’s Bank of China to unveil 400 billion yuan ($56.1 billion) in loans to small business.

Base metals
Three-month base metals prices on the LME were either unchanged or lower this morning and as a complex were down by an average of 0.3% - led by a 0.8% decline in zinc, that was recently quoted at $2,007 per tonne. Copper was down by 0.5% at $5,457.50 per tonne, but this is after having set fresh rebound highs at $5,492.50 per tonne earlier this morning.

The most-traded base metals contracts on the Shanghai Futures Exchange were mainly firmer; the exception was July aluminium that was off by 0.8%, while the rest were up by an average of 0.6%, with July copper and nickel leading the way with gains of 0.7%, with the former trading at 44,550 yuan per tonne - little changed from a similar time on Monday.

Precious metals
Spot gold prices were slightly weaker this morning with prices down by 0.1% at $1,737.67 per oz, this compares with a price of $1,740 per oz at a similar time on Monday. The other precious metals were mixed with silver ($18.19 per oz) and platinum ($848.50 per oz) down by 0.6% and 0.1% respectively, while palladium ($1,977.90 per oz) was up by 0.6%.

Wider markets
The yield on benchmark US 10-year treasuries remains rangebound and was recently quoted at 0.66%, this after being at 0.67% at a similar time on Monday - the range in recent weeks has been 0.61-0.74%.

Asian-Pacific equities were stronger this morning: the Nikkei (+1.44%), the ASX 200 (+0.57%), the Hang Seng (+0.75%), China’s CSI 300 (+0.29%) and the Kospi (+0.95%).

The US dollar index is weaker and was recently quoted at 97.81 - it started to break out of the bottom of its 98.54-100.87 range on May 28, a range it had held since early April. Social unrest in the US over the killing of George Floyd in the run-up to the US presidential election may be undermining the dollar while the US climate becomes more politically charged.

Given this dollar move, it is not surprising that the other major currencies we follow are firmer: the euro (1.1134), the Australian dollar (0.6801) and sterling (1.2501), although the yen (107.70) is flat.

The Chinese yuan (7.1177) has firmed, it was at 7.1367 at a similar time on Monday and has been strengthening since it hit a weak point of 7.1770 on May 27.

Key data
Tuesday’s economic data is mostly low key, the exceptions are the Spanish unemployment change and US total vehicle sales - see table below for more details.

Today’s key themes and views

The base metals have either been extending their rebounds or moving back toward the upper levels of their recent ranges in recent days, all of which suggests there is optimism that the reopening of economies will bring with it improved demand.

We are, however, concerned that while more economies are forced to relax Covid-19 restrictions for socio-economic reasons and are doing so while the spread of the virus is still escalating that this may end up causing more supply disruptions while the virus spreads further from cities to rural/mining areas.

This may be a medium-term problem that materializes in the weeks and months ahead, so may not get in the way of the rebounds continuing in the short term.

Gold prices are consolidating recent gains, but at $1,738 per oz prices are below the May 18 high of $1,765. Optimism for an economic rebound are a likely headwind for gold, but conversely the legacy of the huge debt that has been created to fight the impact of Covid-19 are likely to provide underlying support. The weaker dollar is also likely to provide near-term support.




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