MORNING VIEW: Markets pause to evaluate impact of Covid-19 secondary waves
Markets were mixed this morning, Wednesday June 17, while bullish sentiment continues to be fueled by government liquidity and stimulus but Covid-19 concerns and economic reality remain headwinds.
- Asian-Pacific equity markets were mixed this morning, but pre-market major western equity index futures were weaker.
- Passenger car registrations in the European Union fall by 52.3% year on year in May, April’s decline had been 76.3%.
- Japan’s exports slump to the lowest level in a decade, weakness particularly seen in vehicle exports.
Three-month base metals prices on the London Metal Exchange were for the most part little changed this morning with the main move being a 0.5% fall in nickel to $12,975 per tonne. The others were either unchanged or up or down by 0.1%, with copper up by just $1 per tonne at $5,740 per tonne. Copper is now consolidating below the June 11 high of $5,928 per tonne.
The most-traded base metals contracts on the Shanghai Futures Exchange were for the most part higher this morning, while they played catch-up with the overall gains on the LME on Tuesday that saw the complex close up by an average of 0.7%. July copper was off by 0.1% at 46,720 yuan ($6,596) per tonne, while the rest were up by an average of 0.9%.
Spot gold prices were little changed this morning and were recently quoted at $1,727 per oz, this against $1,727.40 per oz at Tuesday’s close, but it is down from where it was at a similar time on Tuesday morning ($1,729.34). Silver is down by 0.2% at $17.39 per oz, while the platinum group metals are down either side of 0.9%.
In line with the pause in risk-on sentiment today, the yield on the US 10-year treasuries has held around yesterday’s level and was recently quoted at 0.73%, compared with 0.74% and 0.65% at similar times on Tuesday and Monday respectively.
Asian-Pacific equities were mixed this morning: the ASX 200 (+0.55%), the Kospi (-0.03%), the Nikkei (-0.59%), the Hang Seng (unchanged) and China’s CSI 300 (-0.28%).
The US dollar is also consolidating; it was recently quoted at 96.90, this after 96.52 and 97.31 at similar times on Tuesday and Monday respectively.
With the dollar paused, most of the other major currencies have pulled back from yesterday’s higher levels: the euro (1.1279), the Australian dollar (0.6892) and sterling (1.2572), although the yen (107.29) is slightly firmer.
Wednesday’s data showed Japan’s exports fell by 28.3% in the year to May. Later there is a price data out of the United Kingdom and the EU, with US data that includes building permits, housing starts and crude oil inventories.
In addition, Federal Reserve chairman Jerome Powell and Federal Open Market Committee member Loretta Mester are speaking.
Today’s key themes and views
Base metals prices are generally consolidating this morning, but despite some limited pullbacks in broader markets on concerns about second waves of the Covid-19 virus, sentiment seems to remain upbeat. A reminder as to how much damage has been done to metal demand can be seen from today’s announcement that EU passenger vehicle sales were down by 52.3% year on year in May and were down by 41.5% in the first five months of the year. Needless to say the global auto industry and its mass of suppliers consume a lot of metal.
Overall, we would say the risks still lie to the downside for now because we see the demand side of the equation as having been hit a lot harder than the supply side and we expect the demand recovery will be drawn out, especially if second waves of the virus get out of control.
For now gold prices are consolidating below the $1,750-per-oz level and with equities generally buoyant, the opportunity cost of holding gold has climbed and that is likely to be acting as a headwind for gold, but if investors start to get concerned that equities have run ahead of themselves then another wave of rotation out of equities into havens may unfold. For now, prices seem to have established a $1,675-1,750 per oz range.