MORNING VIEW: Metals, broader markets mixed but upbeat, although face headwinds

Recovery hopes tied into the rollout of Covid-19 vaccines and some brighter economic data has driven up bond yields that in turn has lifted the dollar, and that seems to be creating some hesitancy in the metals this morning, Wednesday February 17.

  • The US Dollar Index is firmer
  • US 10-year treasury yields have stepped up a gear as recovery is still being priced in
  • As a barometer, spot gold prices are under pressure
  • EU passenger car registrations fall 24% year on year in January

Base metals
The London Metal Exchange three-month base metals prices were mixed with copper, nickel and zinc down by between 0.2% and 0.3%, while aluminium and lead were up by 0.2% and 0.1% respectively, and tin up was the most with a 0.7% increase to $24,500 per tonne. All the metals though have been heading higher in recent days and most are up in high ground, the slight exception is zinc that, at $2,836 per tonne, is some $50 below its early January high. See table below for more details.

Precious metals
The stronger dollar and higher bond yields weighed on gold prices on Tuesday, with spot gold little changed this morning at $1,788.88 per oz, which is close to testing the February 4 low at $1,785.50 per oz. The low since prices set a record high in August 2020, was at $1,765.50 per oz, seen on November 30.

The more industrial precious metals have not suffered as much, although platinum is down by 0.4% this morning at $1,251 per oz while it consolidates after its recent surge higher.

Wider markets

The yield on US 10-year treasuries was much firmer this morning and was recently quoted at 1.32%, up from 1.23% at a similar time on Tuesday.

Asian-Pacific equities were mainly weaker this morning: the ASX 200 (-0.46%), the Nikkei (-0.58%) and the Kospi (-0.93%), with the Hang Seng (+1.03%) bucking the trend.

The US Dollar Index is rebounding and was recently quoted at 90.77, compared with 90.55 at a similar time on Tuesday, after a low of 90.12 on Tuesday.

The other major currencies were slightly weaker this morning: the euro (1.2074), the Australian dollar (0.7748), sterling (1.3881) and the yen (106.07).

Key data
Data already out on Wednesday showed a barrage of price data from the United Kingdom, all of which was stronger than expected – see table below.

Out later, there is data on UK house prices, with US data including retail sales, producer prices, industrial production, capacity utilization, business inventories and the housing market index from the National Association of Home Builders.

In addition, US Federal Open Market Committee (FOMC) member Thomas Barkin and UK Monetary Policy Committee (MPC) member Dave Ramsden are scheduled to speak and the FOMC will release the minutes from its latest meeting too.

Today’s key themes and views
The base metals are strong and have put in a strong performance while Chinese participants have been on holiday, so there may be further upward pressure once China starts to play catch-up tomorrow and Friday.

Expectations for stronger demand on the back of economic recovery and infrastructure spending are driving prices and the potential headwind brought about by the shortage of semiconductors, has not proved too strong yet. While we think we are in an infrastructure and electrification-charged super-cycle, we should also keep in mind that prices tend not to go up in straight lines. This is especially so if stronger bond yields lift the dollar or unnerve confidence in equities, given they are at or near record or multi-decade highs.

Gold prices are under pressure on the back of the stronger yield and dollar, which combined with strong performances in other asset classes means the opportunity cost of hold gold has risen. But if other markets start to correct then a cheaper gold price may look an attractive haven again.

What to read next
US President Joe Biden will increase tariffs on Chinese imports including steel and aluminium, electric vehicles, semiconductors and advanced batteries, to counteract China’s “unfair” trading practices, he announced on Tuesday May 14
Fastmarkets launched a new price assessment for MB-GER-0006 germanium dioxide, in-whs China, on Friday May 10.
Anglo American's rejection of takeover bids by BHP has put copper firmly under the spotlight, but what challenges lie ahead for the red metal as the corporate tussle continues?
Copper fabricators in China and the wider Southeast Asian region continue to feel the pain of high copper prices on futures exchanges and a lack of new orderbooks, with some having already asked for a postponing of shipments of long-term copper cathodes, sources told Fastmarkets in the week to Wednesday May 15
The US government announced on Tuesday May 14 that new Section 301 import tariffs will be imposed on a wide range of Chinese products and materials, including electric vehicles, steel and aluminium, semiconductors, batteries, solar cells and permanent magnets
During Aemetis' quarterly earnings presentation, CEO Eric McAfee highlighted the inadequacies of current US tax credits for Sustainable Aviation Fuel (SAF) and emphasized the need to extend Section 40B.