MORNING VIEW: Metals prices struggle to maintain high ground amid dire data

Base metals prices were mixed this morning, Friday April 24, after markets had to absorb weak flash purchasing managers’ index (PMI) data on Thursday, especially in the services sector where readings were 11.7 in the European Union and 27 in the United States, while manufacturing readings were also weak.

Broader markets were for the most part weaker this morning with losses seen in Asian-Pacific and pre-market major western equity indices – the latter off by an average of 1.4% as at 6.20am London time.

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Base metals
Three-month base metals prices on the London Metal Exchange were for the most part firmer, but were showing signs of struggling, with prices up by an average of 0.2%. Lead and zinc led on the upside with gains of 0.4%, taking prices to $1,652 per tonne and $1,881.50 per tonne respectively, while tin was down by 0.3% at $14,930 per tonne. Copper was up by just $2 per tonne at $5,140.50 per tonne, this after Monday’s high was $5,248 per tonne.

Volume was light this morning, with 4,004 lots traded as at 5.58am London time, compared with over 10,000 lots at a similar time at the start of the week.

The most-traded base metals contracts on the Shanghai Futures Exchange were also mixed with June lead and zinc down by 0.3% and 0.1% respectively, while the rest of the complex was up by an average of 0.6% – led by a 1.4% gain in June nickel. June copper was up by 0.4% at 41,880 yuan ($5,917) per tonne.

Precious metals
Spot gold and silver prices were consolidating this morning, down by around 0.4% at $1,723.52 per oz and $15.16 per oz respectively, after strong gains on Wednesday and Thursday 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.

Wider markets
The yield on benchmark US 10-year treasuries has eased slightly and was recently quoted at 0.59% this morning, compared with 0.61% at a similar time on Thursday.

Asian-Pacific equities were mainly weaker this morning: the Hang Seng (-0.51%), the Kospi (-1.06%), China’s CSI 300 (-0.74%) and the Nikkei (-1.07%), while the ASX 200 (+0.64%) was stronger.

The dollar index is edging higher and extending further into high ground, it was recently quoted at 100.61 and has been rising in a steady fashion since setting a low of 98.81 on April 14, which was the day that gold prices peaked.

The other major currencies we follow were mixed, the euro (1.0763) was falling, while the others were consolidating: the yen (107.67), the Australian dollar (0.6342) and sterling (1.2336).

Key data
Friday’s economic agenda includes data on Japan’s all industries activity that fell by 0.6% in February, it was expected to fall 0.4%. Later there is data on the United Kingdom’s retail sales for March and the German business climate index for April from Information and Forschung (ifo).

US data includes durable goods orders for March and revised data from the University of Michigan on April’s consumer sentiment and inflation expectations.

Today’s key themes and views
Despite further US stimulus and looser monetary policy in China, the markets are on a back foot this morning, perhaps suggesting they are consolidating after a hectic week where oil prices have captivated their attention.

But given the poor economic data as showed by Thursday’s PMI readings and Fitch Ratings’ update of its Global Economic Outlook that now expects world gross domestic product to fall 3.9% in 2020, which is twice as large as the 2009 fall, the market may be realizing there is little immediate reason to be pushing most asset prices higher, unless they are looking well over the horizon for when all the liquidity that is being pumped into economies starts to inflate asset prices.

In this climate, we expect investors will continue to seek out havens and gold may well be one of the safest, especially when financial markets can throw out such a curved ball as negative prices in oil futures.