MORNING VIEW: Metals prices stronger across the board, helped by rebound in oil prices

Base metals prices on both the London Metal Exchange and Shanghai Futures Exchange are firmer this morning, Thursday April 23, but the price pullbacks in recent days have questioned the robustness of the earlier rebounds.

Oil futures’ dip into negative territory raised concerns, especially in financial markets, because it meant there was no longer a finite amount of risk in holding the commodity. But the rebound into positive territory has calmed fears, at least for now, and indeed it seems there is a bit of a relief rally underway with most equities indices rallying too.

  • Further stimulus is expected to be approved by the US House of Representatives on Thursday, while the European Commission’s €2.2 trillion ($2.4 trillion) economic recovery plan is being held up because member states remain divided.
  • US initial jobless claims, a barrage of corporate earnings data and flash purchasing managers’ index (PMI) data is likely to keep markets on edge.

Base metals
Three-month base metals prices on the LME were up across the board by an average of 0.7% as at 5.58am London time on Thursday, led by tin that was up by 1.7% to $15,125 per tonne. The rest of the complex was up by between 0.3% for zinc ($1,904.50 per tonne) and 0.9% for nickel ($12,045 per tonne). Copper was up by 0.6% at $5,139 per tonne, the high on Monday was $5,248 per tonne.

The most-traded base metals contracts on the SHFE were up across the board by an average of 1.7%, led by a 3.6% climb in June tin prices. June lead and copper were both up by 2%, with the latter at 41,640 yuan ($5,877) per tonne. The rest of the complex was up by an average of 0.9%.

So all in all, some healthy gains considering the LME complex ended Wednesday with gains averaging just 0.2%.

Precious metals
Spot gold prices resumed their rebound on Wednesday and are well placed to extend gains on Thursday with prices recently quoted at $1,716.55 per oz – Wednesday’s high was $1,719 per tonne and the high from April 14 was at $1,747.25 per oz.

The more industrial precious metals were also stronger this morning, up by an average of 1.8% – see table below for more details.

Wider markets
After risk-on has returned in recent days, the yield on benchmark US 10-year treasuries has strengthened again and was recently quoted at 0.61% this morning, compared with 0.56% at a similar time on Wednesday.

Asian-Pacific equities were mainly firmer this morning: the Hang Seng (+0.46%), the Kospi (+1.02%), China’s CSI 300 (+0.16%) and the Nikkei (+1.41%), while the ASX 200 (-0.08%) is slightly negative. Pre-market western equity indices were also mainly firmer, with gains averaging 0.3%.

The dollar index is holding up in high ground, it was recently quoted at 100.27, this after 100.23 at a similar time on Wednesday and a low of 98.81 on April 14.

The other major currencies we follow were mixed, but for the most part were consolidating: the euro (1.0824), the yen (107.83) and the Australian dollar (0.6348), while sterling (1.2360) is weaker.

Key data
Thursday’s economic agenda is focused flash PMI data out across Europe and the United States – presumably the market is already expecting continued weak numbers.

In addition, there is data on German GfK consumer climate, UK public sector borrowing, UK order expectations from the Confederation of British Industry (CBI), US initial jobless claims, US new homes sales and US natural gas storage.

Today’s key themes and views
As things stand now, the rebound in demand seems all important. While countries reduce lockdowns in the weeks ahead manufacturing and industry are expected to be able to get up and running fairly quickly, but their capacity utilization will no doubt be dependent on how quickly end-use demand flows back up the supply chain in the form of new orders.

Another risk is if the Covid-19 virus spreads deeper into mining areas, many of which are in developing countries, because that could hit supply even harder than it has already.

With so much unprecedented uncertainty in all areas of our lives, combined with the economic pain, surprises such as negative oil prices, the ultra-loose monetary and fiscal policy, it does seem that interest in gold will continue to gain ground. But, because gold is held to be used in time of distress, these hard times could prompt selling by individuals, financial institutions and central banks, should they need to raise cash, so gold’s rally is unlikely to be in a straight line but we do expect dips to be short-lived.