MORNING VIEW: More liquidity from US Federal Reserve underpins markets, but are they tiring?

The United States Federal Reserve provided more liquidity to international markets at its meeting that ended on Wednesday, but did not make any major changes. It also said that the path of the US economic recovery would depend on the course of Covid-19 in the country. Given the latest numbers, that showed Covid-19 confirmed cases climbed by 63,255 and deaths rose by 1,449 on Wednesday, this does not bode well.

• Markets braced for weak second-quarter gross domestic product (GDP) data out of Germany and the US.
• UK car manufacturers produced 381,000 vehicles in the first half of the year, down by 42%.
• Today sees a host of large corporate earnings’ releases.

Base metals
Three-month base metals prices on the London Metal Exchange were little changed this morning; copper prices were off by $1 per tonne at $6,475 per tonne, while the rest were up between 0.1% and 0.2%.

Volume has been light, with 4,495 lots traded as of 6.10am London time, this compared with an average of around 6,500 lots at a similar time across last week.

The most-traded base metals contracts on the Shanghai Futures Exchange were for the most part firmer, the exception being October tin that was down 0.4%. September copper was up by 0.2% at 51,890 yuan ($7,408) per tonne, while the rest were showing considerable strength with gains of between 1.7% for September lead and 2.6% for September zinc.

Precious metals
The precious metals were off across the board this morning, with prices down by an average of 1.1%, with spot gold prices down by 0.5% at $1,959.80 per oz, this after Tuesday’s record high of $1,980.70 per oz.

Wider markets
The yield on US 10-year treasuries was at 0.57% this morning – it is holding down in low ground, highlighting continued underlying stress and haven demand.

Asian-Pacific equities were mixed this morning: the Hang Seng (+0.79%), the CSI 300 (-0.14%), the Nikkei (-0.19%), the ASX 200 (+0.65%) and the Kospi (+0.28%).

Currencies
The US dollar index is holding in low ground and was recently quoted at 93.52, the low was at 93.17 on Wednesday.

All the main currencies are consolidating this morning after recent strength and while the dollar has rebounded off recent lows: the euro (1.1761), the Australian dollar (0.7158), the yen (105.24) and sterling (1.2964).

Key data
Economic data already out on Thursday showed Japan’s retail sales fell by 1.2% year on year in June, this after a 12.5% drop in May.

Data out later includes German and Spanish consumer price index data, German and US GDP, EU and Italian unemployment rates and US initial jobless claims.

There is also an economic bulletin from the European Central Bank.

Today’s key themes and views
Base metal prices continue to trend higher; some of the metals, including copper and tin, are seeing prices consolidate this morning after upward momentum has waned.

While the path of least resistance is to the upside, the market is vulnerable to bouts of profit-taking. How the market handles today’s second-quarter GDP data will interesting. The data is expected to be awful, so we should get a feel for whether traders and investors are still only looking forward, or whether bad data prompts a reality check about whether prices have run ahead of the fundamentals.

Gold seems to be repositioning itself for different financial times ahead and that may well see the rally extend for a considerable time. The gold price may not be immune to profit-taking sell-offs along the way should other markets correct, but overall we expect the yellow metal’s repositioning to mean higher prices.