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Markets were disappointed that US President Donald Trump did not announce concrete stimulus/support measures on Tuesday, but measures are still expected in the United States sometime soon and the Wednesday’s annual budget release from the United Kingdom is also expected to signal a significant pick-up in infrastructure spending.
While these and other stimulus policies are likely to boost broader markets, such policy is not going to do much to get the spread of the virus under control and therefore volatility in broader markets is likely to increase.
Base metals The three-month base metals prices on the London Metal Exchange were for the most part stronger this morning, the exception was aluminium that was down 0.8% at $1,689 per tonne. The rest were up by an average of 0.3%, led by a 0.8% gain in zinc to $2,010.50 per tonne, while copper was little changed at $5,584 per tonne.
The most-traded base metals contracts on the Shanghai Futures Exchange were mixed: May lead was off by 0.5%, May aluminium was off slightly and May copper was down by 0.1% at 44,510 yuan ($6,402) per tonne, while the rest were firmer, led by a 1.2% gain in May zinc.
Precious metals Spot gold prices were up by 0.6% at $1,661.44 per oz this morning – the pullback in recent days from Monday’s opening highs of $1,702.98 per oz, seems to be more to do with consolidation than the financial system gaining confidence. Platinum and silver are consolidating, while palladium prices at $2,377 per oz are trending lower, no doubt reflecting concerns over a temporary slower auto industry.
Wider markets The yield on benchmark US 10-year treasuries was recently quoted at 0.67%, this after 0.68% at a similar time on Tuesday.
Asian equities were weaker this morning: Nikkei (-2.05%), the Hang Seng (-0.72%), China’s CSI 300 (-0.86%), the Kospi (-2.78%) and the ASX 200 (-3.6%).
Currencies The rout in the US dollar saw a low on the index of 94.63 on Monday, it was recently quoted at 96.
Sterling (1.2888) has dropped after BOE makes emergency rate cut, the yen (104.42) is weaker, while the euro (1.1350) and the Australian dollar (0.6501) are consolidating.
Key data Wednesday’s key economic agenda is focused on the UK and US, with UK releases on gross domestic product, manufacturing and industrial production, construction output, trade balance and index of services. It is also Budget Day in the UK.
US data includes the consumer price index, crude oil inventories and the Federal budget balance.
In addition, US treasury secretary Steven Mnuchin is speaking.
Today’s key themes and views For the most part the base metals seem to be holding up well, but the spike lower on Monday has broken support levels on some of the key metals and that may well open up the way for further price weakness as the virus spreads through the major economies of Europe and North America.
Stimulus measures may well provide some hope for a stronger rebound down the road, but it does look as though the outlook for demand will get worse before it gets better.
Given the above, the low opportunity cost of holding gold and the overall trend remains firmly to the upside, we expect gold prices have not peaked yet.