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Banks in the United States started to report dismal earnings and the International Monetary Fund (IMF) warned that the global economy faces the biggest slowdown since the Great Depression of the 1930s. While the combined might of central bank intervention is tempting investors to be bullish, the actual fallout numbers are going to be a major headwind for markets to battle through in the short and medium term.
Base metals Three-month base metals prices on the London Metal Exchange were mixed while the complex consolidated Tuesday’s gains. Aluminium led on the upside with a 0.5% gain to $1,522 per tonne, while at the other end of the range, tin was down by 0.5% at $15,380 per tonne. Zinc was up by 0.4% at $1,700 per tonne, while the rest were down by an average of 0.1%, with copper off by 0.2% at $5,179 per tonne.
Volume on the LME has returned to more normal levels with 6,360 lots traded by 6.09am 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 mixed, ranged between June aluminium that was up by 1.2% and May lead that was down by 1.7%. June nickel and zinc were up by 0.8% and 0.6% respectively, while June tin was down by 0.1% and June copper fell by 0.2% to 41,700 yuan ($5,926) per tonne.
Precious metals The spot gold price is consolidating after its recent push to multi-year highs and was recently quoted at $1,726.64 per oz, this after a high of $1,747.25 per oz on Tuesday. Silver has following gold’s lead and was recently quoted at $15.70 per oz, putting the gold/silver ratio at 1:111. Platinum ($786 per oz) has now followed gold and silver out of the bullish flag we have been talking about in recent weeks, and palladium ($2,232 per oz) is still trying to break out of its flag.
Wider markets Tuesday’s risk-on sentiment in the broader markets seems to have eased today with the yield on benchmark US 10-year treasuries weaker, it were recently quoted at 0.73%, compared with 0.76% at a similar time on April 14.
Asian-Pacific equities were weaker this morning: the Hang Seng (-0.4%), the CSI 300 (-0.52%), the ASX 200 (-0.57%), the Kospi (closed) and the Nikkei (-0.49%).
Currencies The dollar index is trending lower again, it was recently quoted at 99.01, compared with 99.27 at a similar time on Tuesday and recent peaks at 100.94 and 103 on April 6 and March 20 respectively.
Key data The economic agenda contains data on French consumer prices and a barrage of US data including retail sales, Empire State manufacturing index, industrial production, utilization rates, business and crude oil inventories, data on housing, the Beige book and Treasury International Capital long-term purchases. Today’s key themes and views With the IMF saying “this is a deep recession. It is a recession that involves solvency issues and unemployment going up substantially and these leave scars,” it seems unlikely there is much room for sustained optimism for equity markets, but the industrial metals may be better placed to benefit from the infrastructure spending that governments are likely to announce as they attempt to kick-start their stalled economies.
But while equity markets absorb poor corporate earnings, a sell-off in that sector could in turn dampen sentiment in the metals.
Our 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.