MORNING VIEW: Metals upbeat as risk-on continues, fueled by Japan’s stimulus package

Base metals prices on the London Metal Exchange and Shanghai Futures Exchange were up across the board this morning, Tuesday April 7, with gains averaging 1.2% and 1.4% respectively.

Broader markets are in a firmer tone following a 7.7% rise in the Dow Jones Industrial Average on Monday and after this morning’s announcement of a record breaking 108 trillion yen ($990 billion) stimulus package by Japan.

  • Most Asian-Pacific equity indices were stronger this morning, as were the major western pre-market equity indices.

Base metals
The three-month copper price on the LME led on the upside this morning with a gain of 2.2% to $5,010.50 per tonne, while the rest were ranged between a gain of 1.5% to $1,926.50 per tonne for zinc and a 0.6% increase to $1,483.50 per tonne for aluminium.

Volume on the LME has sprang higher after a week of lower volumes; as of 6.03am London time some 13,000 lots had traded.

The most-traded base metals contracts on the Shanghai Futures Exchange were led higher by a 2.7% gain in the May zinc contract, followed by a 2.3% gain in the May copper contract that was recently quoted at 40,630 yuan ($5,728) per tonne.

Precious metals
The spot gold price was consolidating this morning after Monday’s gains, dipping by 0.3% to trade at $1,660.40 per oz, while silver was up by 1.1%, which puts the gold/silver ratio at 1:109.

We have said in recent days the precious metals seem to be holding in consolidation patterns that could be described as bullish flag patterns on the charts – gold and silver broke out of those patterns on Monday, while platinum and palladium remain in them.

Wider markets
The yield on benchmark United States 10-year treasuries was firmer again this morning and was recently quoted at 0.71%, compared with 0.63% at a similar time on Monday.

Asian-Pacific equities were for the most part stronger this morning: the Hang Seng (+0.97%), the Nikkei (+1.86%), the CSI 300 (+2.1%) and the Kospi (+1.78%), the exception was the ASX 200 (-0.58%), which was lower, which seems odd considering commodity prices are on the rise.

The dollar index is consolidating after climbing last week, it was recently quoted at 100.44 – this compared with 100.57 at a similar time on Monday morning.

The other major currencies we follow are getting some lift after recent weakness; sterling (1.2282), the Australian dollar (0.6153), the euro (1.0830) and the Japanese yen (108.87).

Key data
Economic data out on Tuesday showed Japan’s leading indicators climbed to 92.1% for February, from 90.5% in January, and German industrial production climbed 0.3% in February, after 3.2% in January.

Key data still to be released includes Italian retail sales, US job openings, US consumer credit and US consumer confidence from the Investor’s Business Daily (IBD), TechnoMetrica Institute of Policy and Politics (TIPP).

Today’s key themes and views
While production cutbacks have helped partially counter the likely loss in demand, they have not yet been enough to offset them, but more production cuts seem likely and if China’s recovery starts to gain momentum then that will help on the demand side. China will need demand to recover in the rest of the world, however, before manufacturing output can recover to pre-crisis levels and that will still take a considerable amount of time.

The markets’ current upbeat mode could run for a while, but there are likely to be news developments that prompt setbacks and confidence is unlikely to return with vigor until more lockdowns are lifted in the industrial areas.

Our view on gold is unchanged: we expect more investors will want to increase exposure to gold given all the fiscal and monetary stimulus that has been done around the world. The rising price trend and underlying uncertainty may well see a gold rally co-exist with equity rallies, especially if some return to risk-on also sees the US dollar retreat too.