MORNING VIEW: Selling dominates again after brief pause at end of last week

The rebounds in the metals toward the end of last week do seem to have been countertrend moves as expected; this morning, Monday March 23, the base metals are down across the board on the London Metal Exchange and Shanghai Futures Exchange.

Asian Pacific equity indices were mainly lower this morning, the exception was Japan’s Nikkei, but it was closed on Friday for a national holiday, as such, the general sell-off continues while the novel coronavirus (2019-nCoV) spreads and as governments act to slow its spread, which is having a massive economic cost.

  • Pre-market Dow Jones Industrial Average (DJIA) futures were down by 3.3% at 7am London time.
  • China relaxes credit controls and the cost of loans in an attempt to kick-start consumer spending.
  • Germany is looking to drop fiscal restraints so it can borrow money to support its economy.

Base metals
Three-month base metals prices on the LME were down across the board this morning with losses averaging 1.9%, led by a 3.1% drop in tin to $13,140 per tonne, followed by a 2.7% drop in copper to $4,571.50 per tonne.

Volume on the LME has been high with 20,135 lots traded as at 6.58am London time, this compared with an average of 16,198 lots at a similar time across last week.

The most-traded base metals contracts on the SHFE were down across the board by between 0.3% for May lead and 5.4% for May aluminium. May copper was down by 3.6% at 37,010 yuan ($5,215) per tonne.

Precious metals
Spot gold prices are consolidating after Friday’s bounce and were recently quoted at $1,489.43 per oz. Silver prices were down by 0.4% at $12.52 per oz, while the platinum group metals (PGM) were up by an average of 1.6%.

Wider markets
The yield on benchmark United States 10-year treasuries has fallen again and was recently quoted at 0.83%, compared with 1.05% at a similar time on Friday.

Asian Pacific equities were mainly weaker this morning: the ASX 200 (-5.62%), the Hang Seng (-4.6%), the Kospi (-5.34%) and CSI 300 (-3.36%); the exception was the Nikkei (+2.02%), but it missed out on Friday’s rallies because the market was closed.

The dollar index is pulling back and was recently quoted at 102.12, this compares with Friday’s peak at 103.

The other major currencies we follow are also rebounding from recent lows: Australian dollar (0.5772), sterling (1.1690), the Japanese yen (110.18) and the euro (1.0722).

Key data
Monday’s economic data includes a German Bundesbank monthly report, Chinese leading indicators and European Union consumer confidence. There are also Group of 20 (G20) meetings scheduled.

Today’s key themes and views
We thought the rebounds at the end of last week were likely to be countertrend moves because with the virus only just starting to have an effect on our way of life and business in Europe and the US, the disruption that lies ahead is bound to affect demand as well as supply, but perhaps demand more quickly.

While western economies grind to a halt, all eyes will be on how China’s recovery gets underway and whether raw material and refined metal producers are forced to close too. As a recovery is bound to take time, while the slowdown is happening now, we expect metals’ prices will remain under pressure. The base metals on the LME are now down by an average of 25.2% from their January highs, ranged between a 16.1% fall in aluminium and 31.1% in copper.

Gold is consolidating either side of $1,480 per oz, while the more industrial precious metals that have fallen harder than gold are trading above today’s opening levels. Overall, we could understand a rebound in gold, with silver possibly following, but with auto sales likely to be significantly weaker for a while, we would not be surprised to see the PGMs hold in low ground for now.