MORNING VIEW: Markets mixed with metals weaker, while equities remain upbeat

The metals were for the most part weaker this morning, Thursday June 4, while Asian-Pacific equities were stronger.

  • While Asian-Pacific equities were firmer, pre-market major western equity index futures were showing losses.
  • Germany provides its economy with a €130 billion ($145.8 billion) stimulus package, including a 3 percentage point cut in value-added tax (VAT) and a doubling of rebate on electric vehicle purchases.

Base metals

Three-month base metals prices on the London Metal Exchange were for the most part weaker this morning. The exception was lead that was little changed at $1,716.50 per tonne, up just $1 per tonne from Wednesday’s close, while the rest were down by an average of 0.4%. Nickel ($12,650 per tonne) led the decline with a drop of 1.1%, while copper was off 0.3% at $5,490.50 per tonne.

Although prices were generally lower this morning, the underlying trends are upward, which suggests prices are just pausing this morning.

The most-traded base metals contracts on the Shanghai Futures Exchange were also for the most part weaker, the exception was July aluminium that was up by 0.5%, while the rest of the base metals were down by an average of 1.1%. July copper was down by 0.6% at 44,630 yuan ($6,273) per tonne.

Precious metals
Spot gold prices were weaker again this morning with prices at $1,699.40 per oz, compared with $1,724.85 per oz at a similar time on Wednesday morning and $1,740 per oz at a similar time on Monday. The other precious metals were mixed with silver ($17.50 per oz) down by 0.6% and palladium ($1,946 per oz) down by 0.1%, while platinum ($831.50 per oz) was up by 0.3%.

Wider markets
The yield on benchmark US 10-year treasuries has broken higher out of its recent range and was recently quoted at 0.75%, this after being at 0.7% at a similar time on Wednesday, which suggests a more risk-on climate – the range in recent weeks had been 0.61-0.74%.

Asian-Pacific equities were mainly higher this morning: the Nikkei (+0.36%), the ASX 200 (+0.84%), China’s CSI 300 (+0.09%) and the Kospi (+0.19%), but the Hang Seng (-0.18%) is weaker.

The US dollar index is consolidating after recent weakness and was recently quoted at 97.59, this after a low on Wednesday of 97.17. Sentiment is turning bearish for the dollar, which seems to be a delayed reaction to the US Federal Reserve’s extremely dovish developments in recent months that includes the central bank’s pumping of dollars into the international market via international swap lines.

Given the pause in the dollar’s weakness, it is not surprising that most of the other major currencies we follow are consolidating: the euro (1.1204), the Australian dollar (0.6887) and sterling (1.2528), although the yen (109.08) continues to weaken while safe-haven trades are unwound.

The Chinese yuan (7.1222) has weakened again after reaching 7.0857 on Wednesday.

Key data
Thursday’s economic agenda is busy – the focus will probably be on the European Central Bank’s monetary policy statement.

There is also data on construction in the United Kingdom, retail sales from the European Union and US data on Challenger jobs cuts, initial jobless claims, revised nonfarm productivity and revised unit labor cost, trade balance and natural gas storage.

Today’s key themes and views
While the metals are consolidating this morning, they have recently 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.

But the buying seems to be in anticipation of a recovery, judging by reports from the physical market activity is low and demand is weak. So we wait to see if the firmer trend of late has run ahead of itself.

The focus going forward will now be on whether the re-opening of economies is sustainable in that it does not spark major second-wave spreads of Covid-19. Because we think there is a big risk of this happening in some regions, we expect the global recovery to face many challenges, including the potential for greater production disruptions.

Gold prices have once again run into resistance ahead of $1,750 per oz, and given the increased risk-on in other asset classes this is not surprising. But given the rebound in equities may have run ahead of itself and there is still a lot of uncertainty as to how we recover from this pandemic, it seems likely that investors will want to continue to hold higher levels of gold in their portfolios, as such we expect dips will be well supported.

In addition, there is increased risk of social unrest and political instability where massive unemployment has happened and where social welfare systems have been inadequate to support those people whose lives have been turned upside down by the virus and their government’s reaction to it.