MORNING VIEW: Metals prices consolidate; expect choppy trading ahead of key data, long weekend

Base metals prices on the London Metal Exchange and Shanghai Futures Exchange were mixed this morning, Thursday April 9, as were Asian-Pacific equity indices.

Markets seem to be consolidating after a show of strength earlier in the week, which was fueled by reports that business activity was ramping up and some of the Covid-19 hotspots in Europe were showing some early signs of peaking.

While the signs of recovery give hope, the damage that has been done to the global economy, to companies and workforces, will mean demand will be slow to recover, while supply may be able to recover more quickly. As such, rebounds may struggle.

  • Market likely to be nervous ahead of today’s United States initial jobless claims and a barrage of economic data.
  • Positions may also be squared ahead of the long Easter weekend.

Base metals
Three-month base metals prices on the LME were mainly firmer this morning, the exceptions were zinc and lead with the former down by 0.2% at $1,909.50 per tonne and lead off marginally at $1,715 per tonne. The rest of the complex was up by 0.5%, led by a 1.1% gain in tin ($14,620 per tonne), while copper was up by 0.2% at $5,034.50 per tonnes.

Volume on the LME has returned to a more normal level, with 6,366 lots traded as of 6.16am London time – this compares with 6,148 lots at a similar time on Wednesday.

The most-traded base metals contracts on the SHFE were mixed, with June zinc and May lead both off by 0.5%, while the rest of the complex was up by an average of 0.8% – also led by a 1.1% gain in June tin, while May copper was up by 0.4% at 40,800 yuan ($5,777) per tonne.

Precious metals
The spot gold price continued to consolidate this morning after Monday’s gains, it was recently quoted at $1,648.73 per oz, the recent peak being $1,673.40 on Tuesday. Silver was up by 1% at $15.09 per oz, which puts the gold/silver ratio at around 1:109.

Platinum and palladium prices remain in consolidation patterns that could be described as bullish flag patterns on the charts, but unlike gold and silver that have broken higher, they seem in no hurry to break higher.

Wider markets
The yield on benchmark US 10-year treasuries was firmer again this morning and was recently quoted at 0.74%, compared with 0.63% at a similar time on Monday.

Asian-Pacific equities were for the most part stronger this morning: the Hang Seng (+0.62%), the CSI 300 (+0.49%), the ASX 200 (+2.89%) and the Kospi (+1.38%), the exception was the Nikkei (-0.26%).

The dollar index is consolidating after climbing last week, it was recently quoted at 100.27 – this compared with a peak of 100.94 on Monday.

The other major currencies we follow are generally consolidating: sterling (1.2365), the Australian dollar (0.6202), the euro (1.0845) and the Japanese yen (108.94).

Key data
The economic agenda is busy on Thursday; key data includes Germany’s trade balance, manufacturing, industrial and construction data from the United Kingdom and Italian industrial production – but most of it is for February, before the impact of the Covid-19 virus took hold.

US data includes initial jobless claims, which are expected to reach 5.5 million, producer price index, University of Michigan consumer sentiment and inflation expectations, final wholesale inventories and data on natural gas storage.

In addition, there is a Eurogroup meeting and the Organization of Petroleum Exporting Countries (OPEC) / Joint Ministerial Monitoring Committee (JMMC) are meeting to see if they can come to a deal on oil. US Federal Reserve chairman Jerome Powell is also speaking and the European Central Bank is publishing its recent meeting accounts.

Today’s key themes and views
Markets’ current upbeat mode could run for a while, but there are likely to be new developments that prompt setbacks and confidence is unlikely to return with vigor until more lockdowns are successfully lifted in the industrial areas. If second waves of the virus then breakout once lockdowns are lifted then the market could have to brace for longer lockdowns. While some production cuts will partially help offset demand destruction, if the virus is contained and recoveries get underway then production is likely to pick-up at a faster pace than general demand is. This may keep the lid on metal prices for longer.

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.

The next Morning View is scheduled for Tuesday April 14.