MORNING VIEW: Metals prices mainly firmer, wider markets mixed as corporate earnings loom

The base metals on the London Metal Exchange and on the Shanghai Futures Exchange were mainly firmer this morning, Monday April 20, but broader markets were mixed with equities braced for the release of corporate earnings.

With some countries and regions looking to lift restrictions, while others are extending restrictions and with uncertainty about whether reopening will lead to second waves of the Covid-19 virus spreading, the outlook remains murky.

  • Asian-Pacific equities were mainly weaker, while pre-market major western equity futures were mixed, with gains in Europe and losses in the United States.
  • Corporate earnings season continues, so could lead to some shocks.

Base metals
Three-month base metals prices on the LME were up by an average of 0.8% as at 6.41am London time this morning, led by a 2.3% gain in nickel to $12,350 per tonne. Lead was the odd one out, it was down by 0.1% at $1,675.50 per tonne, while the rest were up between 0.4% for copper ($5,231.50 per tonne) and 0.9% for tin ($15,310 per tonne). Encouragingly the gains were seen on strong volume.

Volume on the LME was higher than it has been in recent days with 11,453 lots traded as at 6.41am London time, compared with an average of 8,308 lots traded at a similar time across last week and 6,750 lots the week before.

The most-traded base metals contracts on the SHFE were also stronger by an average of 0.8% and again June lead was the one bucking the trend with a 1.2% loss, while the rest were up by an average of 1.2%, led by a 4.1% gain in June nickel – without nickel and lead, the others were up by an average of 0.5%. June copper was up by 0.7% at 42,510 yuan ($6,009) per tonne.

Precious metals
Spot gold and silver prices have been under pressure in recent days because risk-on in other markets has led to some profit-taking in bullion and rotation into equities. Gold was recently quoted at $1,677.82 per oz, this after a peak last week of $1,747.25 per oz. Silver was recently quoted at $15.16 per oz, this after a peak of $15.97 per oz last week.

Platinum and palladium are moving sideways with prices recently quoted at $780.20 per oz and $2,199.50 per oz respectively.

Wider markets
Despite the return of risk-on in broader markets the yield on benchmark US 10-year treasuries has retreated to 0.63%, after 0.66% at a similar time on April 17.

Asian-Pacific equities were mainly weaker this morning: the Nikkei (-1.15%), the Hang Seng (-0.16%), the ASX 200 (-2.45%) and the Kospi (-0.84%), but China’s CSI 300 (+0.15%) is bucking the trend.

The dollar index is consolidating last week’s gains, it was recently quoted at 99.98, this after a low of 98.81 on April 14.

The other major currencies we follow are mixed and generally consolidating: sterling (1.2457), the euro (1.0852), the yen (107.85) and the Australian dollar (0.6345).

Key data
Today’s economic data is light with Germany’s producer price index falling by 0.8%, the largest fall since 2009. Later there is data on the European Union’s current account and trade balance and there is also the Bundesbank’s monthly report.

Today’s key themes and views
Copper, zinc and nickel, arguably the main infrastructure metals, are leading on the upside, and all-rounder aluminium is holding up relatively well above recent lows, as is tin, while auto-dominated lead is the metal that is bucking the trend with its price drifting lower again.

Also with equities upbeat that is another tailwind for the metals, but the metals are unlikely to be immune to set back in equity prices and the reality of the demand destruction, further poor data, corporate earnings and guidance, as well as all the debt companies will have incurred, could mean equities suffer another reality check before too long.

Gold prices are experiencing some profit-taking, but our overall view on gold is unchanged: the combination of economic pain, much uncertainty and ultra-loose monetary and fiscal policy, are expected to support demand for gold and other havens.