MORNING VIEW: Metals prices start week on front foot amid risk-on mood

Metals prices were for the most part stronger this morning, Monday April 27, as were Asian-Pacific equity indices, while gold prices were slightly weaker and US treasury yields were firmer - all suggesting a broad risk-on mood.

Market participants seem to be focused on and optimistic about the plans for the gradual reopening of economies while countries get a handle on the Covid-19 pandemic.

  • Pre-market major western equity index futures were up by between 1.1% and 2.5%.
  • Central banks in Japan and Europe expected to buy more bonds to support their economies while they move into a recovery phase.

Base metals
Three-month base metals prices on the London Metal Exchange were stronger across the board with prices up by an average of 1.7% as at 5.55am London time. Tin led the advance with a 3% rise to $15,350 per tonne, while aluminium lagged behind with a 0.4% rise to $1,520 per tonne. Copper was up by 1.3% at $5,253.50 per tonne.

Strong price gains and good volume, with 9,373 lots traded as at 6.55am London time, bode well; volumes at a similar time of day across last week averaged 7,443 lots.

The most-traded base metals contracts on the Shanghai Futures Exchange were also up across the board with gains averaging 2.5%, also led by a 5% rise in June tin, while once again June aluminium lagged behind with a 0.8% rise. June copper was up by 2% at 42,660 yuan ($6,023) per tonne.

Precious metals
Spot gold prices are off by 0.4% at $1,721.26 per oz, this after strong gains on April 22 and 23 that saw gold reach a high of $1,738.75 per oz – just short of this year’s high of $1,747.25 per oz that was seen on April 14.

The more industrial precious metals are holding up well while they consolidate.

Wider markets
The yield on benchmark US 10-year treasuries has eased and was recently quoted at 0.62% this morning, compared with 0.58% at a similar time on April 24.

Asian-Pacific equities were stronger this morning: the Hang Seng (+1.95%), the Kospi (+1.83%), China’s CSI 300 (+1.06%), the Nikkei (+2.79%) and the ASX 200 (+1.29%).

The dollar index is retreating, it was recently quoted at 99.93 – this after April 24’s peak at 100.87 stalled just ahead of the 100.94 peak on April 6.

The other major currencies we follow were rising as the dollar weakens: the euro (1.0848), the yen (107.24), the Australian dollar (0.6461) and sterling (1.2449).

Key data
Monday’s economic agenda is light, with the focus on the Bank of Japan’s outlook and press conference.

Today’s key themes and views
Risk-on seems to be dominating this morning while market participants focus on the prospects of economies reopening in parts of Europe and the United States.

While this is encouraging there are still numerous risks to contend with, firstly how long will it take for end-use demand to recover i.e. how long will it take businesses and households to start buying non-essential goods and second, will the easing of lockdowns spark second waves of the virus.

Gold prices are consolidating in high ground, but with risk-on being seen in other markets it would not be surprising to see gold prices consolidate further. But with so much uncertainty around, we expect any dips in gold will be well supported.