MORNING VIEW: Metals, broader markets mixed amid weaker dollar

There are numerous crosscurrents running through the markets this morning, Tuesday August 18, with the base metals mainly firmer and gold rebounding strongly, while equity markets were mixed and the dollar continued to weaken.

  • Broader US equity markets were weaker this morning following Monday’s poor US manufacturing data and rising mortgage delinquencies, but the Nasdaq established a fresh record high yesterday.
  • US Commerce Department intensifies it throttling of Huawei – will China let this happen or retaliate?

Base metals
The London Metal Exchange three-month base metals prices were little changed this morning with most either up or down by 0.1% from Monday’s closes; the exceptions were aluminium that was up by 0.3% at $1,761.50 per tonne and nickel that was down by 0.3% at $14,595 per tonne. Copper was up by 0.1% at $6,457 per tonne.

The most-traded base metals contracts on the Shanghai Futures Exchange were for the most part more bullish, the exception being September lead that was down by 0.2%, while the rest of the complex was up by an average of 1% – led by a 1.9% gain in September zinc. September copper was up by 1.2% at 50,980 yuan ($7,347) per tonne.

Precious metals

Spot precious metals prices were up across the board with gold prices up by 0.6% at $1,994.40 per oz, while the rest of the precious metals were up between 1.8% and 2.3%.

Wider markets
The US 10-year treasuries yield was at 0.67% this morning, this compared with 0.69% at a similar time on Monday.

Asian-Pacific equities were mixed this morning: the CSI 300 (-0.01%), the Hang Seng (+0.02%), the ASX 200 (+1.04%), the Nikkei (-0.29%) and the Kospi (-2.63%).

Currencies
The dollar index weakened again this morning and was recently quoted at 92.62, and is on course to test the recent low at 92.49 from August 6.

Conversely, the other main currencies were firmer: the euro (1.1892), the Australian dollar (0.7223), the yen (105.56) and sterling (1.3138).

Key data
Today’s economic agenda is light with US data on housing starts and building permits, both of which are expected to continue their recoveries from their April plunge.

Today’s key themes and views
Zinc and nickel are the two metals that are outperforming, while tin is the one pulling back the most. Tin’s weakness may be tied into the likely fallout from US sanctions on Huawei that is affecting the semiconductor industry. While we still think there may be room for deeper pullbacks, for now dips are being bought and prices are for the most part holding up well. Overall, we remain bullish in the medium term given the amount of money that has been pumped into the financial system and into infrastructure projects.

We remain overall bullish on gold. The sharp spike lower on August 11 and 12 attracted dip-buying and we are now seeing follow-through buying too. The main drivers seem to be the continuing uncertainty surrounding Covid-19, all the liquidity in the financial system, the weaker dollar and the increased tension between the United States and China, especially with the US’ heavy-handed policy toward Chinese tech companies, which is likely to prompt some retaliation.

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