MORNING VIEW: Metals prices buoyant on fresh optimism

Markets are looking brighter this morning Tuesday April 14, on a combination of more mining production cuts, a deal on an oil supply cut, better Chinese trade data that showed imports were only down by 0.9% year on year in March and some reopening of businesses in Europe.

There is light at the end of the tunnel but it is early days in the plateauing of the Covid-19 pandemic in Europe and the United States, and the early economic fallout from the coronavirus is likely to be quantified in the days ahead once corporate earnings are released.

  • The fact that general markets were buoyant but gold prices were also pushing up through levels not seen for seven years highlights there is still considerable nervousness about.
  • The Dow Jones Industrial Average was up by 1.7% in pre-market trading, this after a 1.4% fall on Monday.

Base metals

Three-month base metals prices on the London Metal Exchange were stronger across the board this morning, with the complex up by an average of 2% as of 6.40am London time. Leading the way was copper with a 3.2% gain to $5,191 per tonne, followed by tin and zinc that were up by 2.3% and 2.2% at $15,300 and $1,950.5 per tonne respectively, while lead lagged behind with a 1% gain to $1,743 per tonne.

Volume on the LME has not surprisingly been higher than normal, having been closed on Friday and Monday. Some 12,422 lots had traded by 6.40am London time, compared with an average last week of 6,750 lots traded at a similar time across last week.

The most-traded base metals contracts on the Shanghai Futures Exchange were mixed, though the complex was up by an average of 0.4%. May lead (+2.3%) and June zinc (+1.1%) led the charge higher, June copper inched up by 0.2% to 41,800 yuan ($5,940) per tonne, while June aluminium and June nickel were down by 0.1% and 0.2% respectively and June tin was down by 0.7%.

For a comparison with the LME three-month copper price, June copper on the SHFE was up by 2.5% from the time of the Morning View report on April 9, compared with a 3% gain in LME copper over the same period.

Precious metals
The spot gold price has raced higher since the close of last week, it was recently quoted at $1,715.50 per oz, up by 1.9% from April 9’s close at $1,683.80. Spot silver, platinum and palladium were up by 1.2%, 2.1% and 3.7% respectively, with the gold/silver ratio at around 1:110.

Wider markets
The more risk-on sentiment in the broader markets has seen the yield on benchmark US 10-year treasuries firm, they were recently quoted at 0.76%, compared with 0.74% at a similar time on April 9.

Asian-Pacific equities were stronger this morning: the Hang Seng (+0.81%), the CSI 300 (+1.43%), the ASX 200 (+1.87%), the Kospi (+1.73%) and the Nikkei (+3.13%).

The dollar index is trending lower again, it was recently quoted at 99.27, compared with 100.27 at a similar time on April 9.

Key data
The economic agenda on Tuesday was focused on Chinese trade data – see table below. Exports fell by 3.5% year on year in March, while they had fallen by 15.9% in the first two months of the year. But, with so much of the world locked down in April, China’s export sector will have suffered a slump in demand, so the data going forward is likely to deteriorate again.

Today’s key themes and views
With China in recovery mode the country’s demand for metal will pick-up again, but without a strong export market, demand will be muted until other major economies are also in recovery mode. Production cuts will at least hopefully prevent too large a surplus from building up, as was seen in the 2008-2009 financial crisis.

Key going forward now will be whether second waves of the virus hamper the restart of industry, manufacturing and construction. If consumers are slow to regain confidence, then governments are likely to step in with infrastructure spending, which should be certainly help demand for metals recover, especially as such spending is likely to be seen across a wide geographical area.

Equity markets should, however, be braced for poor corporate earnings, which in turn could dampen sentiment in the metals.

Our view on gold is unchanged: we expect more investors will want to increase exposure to gold given all the fiscal and monetary stimulus that has been done around the world. The rising price trend and underlying uncertainty may well see a gold rally co-exist with equity rallies.