MORNING VIEW: Markets recover after Tuesday’s broad market dip; base metals prices mixed

After the broad-based dip on Tuesday February 18 that was partially triggered by Apple’s sales warning, markets have recovered on Wednesday with equity indices in Asia stronger, as are pre-market western equity indices.

Base metals prices on the London Metal Exchange were up across the board this morning, while those on the Shanghai Futures Exchange were mixed.

  • Spot gold prices are holding on to Tuesday’s gains – they were recently trading at $1,604.65 per oz, compared with $1,585.44 per oz at a similar time on Tuesday.
  • China reported 136 new deaths from the novel coronavirus (2019-nCoV) by the end of Tuesday, but recoveries are outpacing new cases. South Korea had reported 15 new cases.
  • Palladium prices are climbing strongly on fears of supply shortages, this despite weak auto sales.

Base metals
Three-month base metals prices on the London Metal Exchange were rebounding this morning, with prices up by an average of 0.5% – led by a 1.2% gain in tin to $16,625 per tonne. This was followed by a 0.7% rise in copper to $5,802.50 per tonne, little changed from where it was at a similar time on Tuesday. Nickel and zinc were up by 0.6% and 0.5% respectively, while lead and aluminium were little changed.

Trading volumes have started to settle down to be more average, with 6,533 lots traded as of 5.37am London time, against an average of 7,906 lots at a similar time across last week.

The most-traded base metals contracts on the Shanghai Futures Exchange were mixed on Wednesday; April lead was the outperformer with a 0.6% climb, followed by a 0.3% rise in April copper to 46,460 yuan ($6,638) per tonne and a 0.1% increase in June tin. The April contracts for aluminium, nickel and zinc were down between 0.1% and 0.2%.

The spot copper price in Changjiang was up by 0.1% at 45,960-46,020 yuan per tonne, while the LME/Shanghai copper arbitrage ratio was at 8, compared with 7.98 on Tuesday.

Precious metals
The spot gold price was up by 0.2% at $1,604.65 per oz this morning, but palladium has been in the driving seat with an 8% gain to $2,837 per oz – it is now up by 16.6% since February 14’s close, this despite a continuing slump in China’s auto sales and weaker sales in Europe too.

The spot silver price was up by 0.9% at $18.31 per oz, while platinum was up by 1.7% to $1,007 per oz.

Wider markets
The yield on benchmark United States 10-year treasuries was firmer and was recently quoted at 1.56%, compared with 1.55% at a similar time on Tuesday. The German 10-year bund yield was weaker and was recently quoted at -0.41%, compared with -0.4% on Tuesday.

Asian equities were for the most part firmer this morning: Nikkei (+0.89%), the Hang Seng (+0.39%), China’s CSI 300 (+0.06%) the ASX 200 (+0.43%), the exception was the Kospi (-0.07%).

The dollar index (99.45) continues to climb, it is now the highest it has been since October last year, when the index peaked at 99.67. The euro (1.0798) is the weakest it has been since April 2017, which reflects the weak European Union economy, compared with a more robust US one.

Sterling (1.2994) and the Australian dollar (0.6696) are consolidating, while the yen (110.04) is weaker.

Key data
Wednesday’s economic agenda is busy, there is a host of United Kingdom price index data – see table below – along with US data that includes building permits, housing starts and the producer price index.

In addition, US Federal Open Market Committee (FOMC) members Neel Kashkari, Robert Kaplan and Loretta Mester are speaking and the FOMC meeting minutes are to be released.

Today’s key themes and views
The base metals remain mixed and in consolidation mode with copper, lead and tin near the top of their rebound ranges, with aluminium and nickel in mid-range and zinc near its lows. For now the metal prices seem to take their cue from the equity markets, but do not seem in any hurry to become too directional. We expect more of the same until more is known about the level of disruption the virus is causing around the world. We expect the impact on the global economy from the virus to deteriorate, before a recovery gets underway.

Gold prices did jump higher on Tuesday on concerns that the fallout from the virus may be far reaching in that it could hit international corporate profits, but the financial stimulus that countries are implementing and talking about will also reduce the opportunity cost of holding gold as a haven. We expect gold to remain underpinned until the coronavirus is contained.

Palladium is now trading at a $1,140-per-tonne premium to gold and a $1,745-per-tonne premium to platinum.