MORNING VIEW: Markets volatile, skeptical about Trump’s oil talk; traders brace for US employment report

Markets are mixed and on average weaker this morning, Friday April 3, after the rally on Thursday following a 20% rise in oil prices faded.

United States President Donald Trump seemed to distract the market after the dreadful US unemployment claims data on Thursday, by talking of a potential oil deal that would see 10-15 million barrels per day cut, but traders are skeptical after Russia denied there had been top-level talks.

  • Asian-Pacific equity indices were down across the board this morning, this despite a 2.2% rise in the Dow Jones Industrial Average on Thursday.
  • Pre-market western equity indices were weaker as of 6.35 am London time.
  • China’s Caixin services purchasing managers index (PMI) rebounded to 43 in March, from 26.5 in February.

Base metals
Three-month base metals prices on the London Metal Exchange were for the most part little changed, the biggest mover was zinc that was up by 0.4% at $1,883 per tonne, while the rest were ranged between down and up by 0.1%. Copper was up by just $1 per tonne at $4,882.50 per tonne. Most of the metals are in consolidation mode while they await fresh developments, while aluminium is the only metal still trending lower and is at level last seen in April 2016.

Volume on the LME was at a pre-crisis low level of 3,419 lots traded as at 5.40am London time, this compares with an average last week of around 11,000 lots at a similar time of day. This suggests markets have largely adjusted to the current situation, at least for now.

While LME metal prices were little changed, the most-traded base metals contracts on the Shanghai Futures Exchange were for the most part stronger at the close of trading on Friday, the exception was June nickel that was off by 0.3%, the rest were up by an average of 0.6%. May copper was up by 0.7% at 39,930 yuan ($5,627) per tonne.

Precious metals
Spot gold prices are still consolidating after Thursday’s 1.1% gain and prices were recently quoted at $1,613 per oz, compared with $1,586.89 per oz at a similar time on Thursday morning. Silver was recently quoted at $14.42 per oz, which was down by 0.2% from Thursday’s close.

All the precious metals seem to be holding in consolidation patterns that could be described as bullish flag patterns on the charts.

Wider markets
The yield on benchmark US 10-year treasuries was recently quoted at 0.59%, this was unchanged from a similar time on Thursday.

Asian-Pacific equities were mainly weaker this morning: the Hang Seng (-0.98%), the CSI 300 (-0.74%), the Nikkei (-0.76%) and the ASX 200 (-1.68%), the exception was the Kospi that was up by 0.13%,.

The dollar index is consolidating after climbing on Thursday, it was recently quoted at 100.17, this compared with 99.37 at a similar time on Thursday morning.

The other major currencies we follow are mixed, sterling (1.2386) and the Australian dollar (0.6071) are consolidating, while the euro (1.0848) and the Japanese yen (107.89) are weaker.

Key data
Friday’s data will focus on the monthly US employment report and also services PMI data out in China – as highlighted above – Europe and the US, which should give important insight into how damaged economies are.

There is also data on retail sales in the European Union.

Today’s key themes and views

With a broad range of markets becoming less directional and with volumes declining on the LME, it does look as though markets are now waiting for more evidence on how the Covid-19 virus is spreading through Europe and the US, and how lasting the damage will be. Key to that will be whether second waves of the virus become an issue in China and South Korea, which could mean lockdowns last even longer.

As we have seen with oil, talk of significant production cuts can lead to sharp rallies, so the potential for more cut back announcements in the metals may deter shorts.

Our view on gold is unchanged: while the crisis unfolds we expect there will be more demand for haven assets, especially while investors start to think about what the legacy will be of all the fiscal and monetary stimulus that has been done around the world.