MORNING VIEW: Metals prices shake off China’s grim GDP data as it could have been worse

Chinese gross domestic product (GDP) fell 6.8% in the first quarter and more recent data for March on fixed asset investment and retail sales continued to show significant weakness, dropping by 16.1% and 15.8% respectively. But industrial production fell by just 1.1% in March, against an expected fall of 7%.

So while the Chinese economy stalled in late January and February and GDP data could have been a lot worse, the data for March paints a mixed picture but one that supports our view that production will recover at a faster pace than demand. Overall, it seems markets are in the mood to look forward – it may be asking a lot to hope they can continue to do so.

• Asian-Pacific equities were stronger this morning and pre-market major western equity futures were up either side of 3%.
• The opening up of some economies in Europe and the potential for some areas in the United States to reopen are providing some bullish sentiment.
• European new vehicle registrations fell by 55.1% in March, and were down by 25.6% in the first quarter.

Base metals
Three-month base metals prices on the London Metal Exchange were up by an average of 1% as at 6.26am London time this morning, led by a 2% gain in copper to $5,221 per tonne. Lead and tin lagged behind with gains of 0.5%, but encouragingly the gains were seen on strong volume.

Volume on the LME was higher than it has been in recent days with 10,050 lots traded as at 6.26am London time, compared with an average of 6,750 lots traded at a similar time across last week.

The most-traded base metals contracts on the Shanghai Futures Exchange were also stronger across the board with gains averaging 1.3%, led by a 1.9% gain in June tin, while June copper was up by 1.7% at 42,210 yuan ($5,963) per tonne.

Precious metals
The pick-up in risk-on in broader markets has weighed on gold, with the spot gold price off by 0.3% this morning at $1,701.40 per oz, while silver and platinum prices were off by 1% and 0.4%, at $15.26 per oz and $780.70 per oz respectively. Palladium was up by 0.4% at $2,188 per oz.

Wider markets
The return of risk-on has also seen a pick-up in the yield on benchmark US 10-year treasuries that has climbed to 0.66%, after 0.63% at a similar time on Thursday, but despite the enthusiasm it is still below Wednesday’s level of 0.73%.

Asian-Pacific equities were stronger this morning: the Nikkei (+2.98%), the Hang Seng (+2.46%), the ASX 200 (+1.31%), the CSI 300 (+1.55%) and the Kospi (+3.29%).

Currencies
The dollar index is consolidating this week’s gains, it was recently quoted at 99.95, this after a low of 98.81 on Tuesday.

The other major currencies we follow are mixed and generally consolidating: sterling (1.2475), the euro (1.0849), the yen (107.75) and the Australian dollar (0.6346).

Key data
In addition to the Chinese data already discussed, data from Japan showed revised industrial production fell by 0.3% in February, having earlier been reported up by 0.4%, and tertiary industrial activity dropped by 0.5% in February, with January’s figure revised lower to 0.3%, from 0.8%.

Later there is data out in Europe on Italy’s trade balance, European Union consumer prices and US leading indicators.

In addition, the International Monetary Fund meeting continues.

Today’s key themes and views
The base metals are either the highest they have been since bottoming out after the Covid-19 virus sell-off began or are close to it. At their low points prices were off an average of 26% from the pre-crisis highs, this morning they were down by an average of 17%. As we said on Thursday, the rallies in the base metals may be paused for now but generally they look well placed to extend gains and you could argue that the likelihood of government infrastructure projects taking off once lockdowns end could mean that is one of the first areas that sees a recovery in demand.

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 seem to be experiencing some profit-taking today, 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. Proof as to whether this view is right will be seen in how long this pullback in gold prices lasts.