MORNING VIEW: Metals prices consolidate near recent highs, waiting for fresh news

With no let-up in the number of coronavirus (2019-nCov) infections in China, the market is this morning, Friday February 14, waiting for signs that the virus is being contained.

In the meantime, it seems as though equities are riding high on the back of China monetary stimulus measures, while the metals markets are more aware that the disruption to production and demand will have a mixed impact commodities.

  • LME base metals prices were down by an average of 0.3%, having closed up by an average of 0.8% on Thursday.
  • Asian equities were mixed and premarket western equity indices are firmer this morning.
  • The spot gold price is holding up in high ground and was recently quoted at $1,575.50 per oz, this despite the dollar rising further.

Base metals
Three-month base metals prices on the London Metal Exchange were for the most part weaker at 5.37am London time. Zinc and lead prices were all but flat, while aluminium led on the downside with a 0.8% fall to $1,740 per tonne, followed by 0.4% falls in both tin ($16,525 per tonne) and nickel ($13,200 per tonne), while copper was down by 0.3% at $5,775.50 per tonne.

Trading volumes was below average with 5,215 lots traded as of 5:37am London time, down from an average of 8,590 lots at a similar time across Monday to Thursday this week.

The most-traded base metals contracts on the Shanghai Futures Exchange were mixed, April lead led on the upside with a 1.1% gain, April zinc was up by 0.5% and April copper was up by 0.4% at 46,070 yuan ($6,598) per tonne. April aluminium, nickel and June tin were down by 0.2%, 0.5% and 0.1% respectively.

The spot copper price in Changjiang was up by 0.2% at 45,620-45,655 yuan per tonne, with the LME/Shanghai copper arbitrage ratio was at 7.97, compared with 7.99 on Thursday.

Precious metals
Spot gold prices were little changed this morning, up by 0.1% at $1,575.50 per oz, compared with Thursday’s close. The more industrial precious metals were up by an average of 0.4%, see table below for price details.

Wider markets
The yield on benchmark United States 10-year treasuries was slightly firmer and was recently quoted at 1.60%, compared with 1.59% at a similar time on Thursday. The German 10-year bund yield was slightly weaker and was recently quoted at -0.39%, compared with -0.389% at a similar time on Thursday.

Asian equities were mixed this morning: Nikkei (-0.59%), the Kospi (+0.48%), the Hang Seng (+0.25%), China’s CSI 300 (+0.11%) and the ASX 200 (+0.38%).

The dollar index (99.07) is extending gains, buoyed by generally strong data and as its acts as a haven in this time of stress.

The euro continues to trend lower (1.0838) reflecting the weaker economy, the yen (109.77) and the Australian dollar (0.6723) are consolidating, while sterling (1.3051) was firmer due to the market expecting more government spending following UK Prime Minister Boris Johnson’s cabinet reshuffle.

Key data
Today is a busy day on the economic data front, key data includes: Germany’s gross domestic product (GDP), Germany wholesale price index, EU employment change and EU GDP, with US data including retail sales, industrial production, capacity utilizations, University of Michigan consumer sentiment and inflation expectations, and business inventories.

In addition, US Federal Open Market Committee member Loretta Mester is speaking at the University of South Florida, in Sarasota.

Today’s key themes and views
Overall, the base metals prices on the LME are edging their rebounds higher, which suggests in the absence of fresh damaging news traders are seeing the lower prices as a buying opportunity. Prices are still down by an average of 8.3% from the pre-coronavirus sell-off, at their lows they were down by an average of 11.9%. Until more is known, we still expect prices to remain choppy.

Gold prices are holding up in high ground, we expect gold to remain underpinned until the virus is contained.

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