MORNING VIEW: Markets off to a quiet start despite China saying it is open to trade deal

While any deal would likely turn sentiment bullish quickly, it does look as though the market is skeptical that anything will come of this.

We should be braced for an active day because the next wave of US tariff increases on Chinese goods are set to come into effect on Sunday September 1 and Monday is the US Labor Day holiday, so there could be more than a usual amount of book squaring or short-covering today in case some good trade news emerges today or over the weekend. 

• Asian equities are mainly upbeat, led by a 1.2% gain in Japan’s Nikkei. 
• The economic agenda is busy today.

Base metals
Three-month base metals prices on the London Metal Exchange were mixed and activity has been light, with just 2,714 lots traded as of 7.14am London time. The main mover has been lead which is down by 0.3% at $2,048 per tonne, having once again failed to hold up above $2,100 earlier in the week. Nickel is up by 0.2% at $16,625 per tonne and is closing in on the August 8 high of $16 690, with the latest driver being concern that production at the Ramu mine in Papua New Guinea may be halted following a pollution incidence. The copper price was down by $1 at $5,706 per tonne, compared with Thursday’s close.

In China, the November contract nickel price is up by 2.3%, the rest are mixed with October zinc off by 0.4% and October copper up by 0.2% at 46,650 yuan ($6,522) per tonne; the others are little changed.

The spot copper price in Changjiang was also up by 0.2% at 46,640-46,710 yuan per tonne and the LME/Shanghai copper arbitrage ratio has slipped to 8.18, compared with 8.20 on Wednesday.

Precious metals
The spot gold price was recently quoted at $1,528.11 per oz, unchanged from Thursday’s close, but down from yesterday’s high at $1,550.40. The silver price is consolidating too and was recently quoted at $18.34 per oz, down from yesterday’s high of $18.65. Platinum price is holding up well, with prices at $923 per oz.

On the SHFE, the December gold contract was down by 0.7% and the silver contract was little changed.

Wider markets
The spot Brent crude oil price was recently quoted at $60.22 per barrel – its recent range being $55.86-61.48 per barrel.

The yield on benchmark US 10-year treasuries has edged higher suggesting some slight reduction in haven demand. It was recently quoted at 1.5307%, compared with 1.4817% at a similar time on Thursday. The German 10-year bund yield is firmer too at -0.6870%, compared with -0.7040% at a similar time on Thursday.

In equities, Asian indices were mainly firmer on Friday: Nikkei (+1.19%), Hang Seng (-0.22%), Kospi (1.78%), the ASX200 (+1.49%) and the CSI 300 (+0.25%).

This follows a stronger performance in Western markets on Thursday: in the US, the Dow Jones Industrial Average closed up by 1.25% at 26,362.25 and in Europe the Euro Stoxx50 closed up by 1.4% at 3,414.

Currencies
The dollar index is firmer and was recently quoted at 98.57, it has climbed above the recent high at 98.46. The yen (106.47) has eased from recent strength at 104.79, the euro (1.1037) is drifting lower again, as are the Australian dollar (0.6718) and sterling (1.2189).

The yuan has turned firmer and was recently at 7.1455 compared with 7.1700 at a similar time on Thursday.

Key data
There is a mass of economic data out on Friday. Key data already out shows Japan’s housing starts fell 4.1%, German retail sales fell 2.2% and the French consumer price index (CPI) climbed 0.5%, up from -0.2% previously. There is data out on the employment situation in Italy and the European Union, lending data in the United Kingdom, and CPI in Italy and the EU.

US data includes CPI, personal spending and income, personal consumption expenditures, Chicago purchasing managers’ index and revised university of Michigan consumer sentiment and inflation expectations.

Today’s key themes and views
The base metals are off to a slow start, but optimism about a trade deal may well start to filter into the metals and provide some lift. That could gain momentum this afternoon ahead of the US’ long weekend. That is, unless President Donald Trump pours cold water on negotiations. A trade deal could spark a very different outlook for the metals, but as we have been close to trade deals before that have come to nothing, the market may well be reserved until one is signed.

The robustness of the gold rally and the weakness in government bond yields of late shows how concerned the markets have become, so any relief, could lead to the unwinding of havens.