MORNING VIEW: Western markets open on front foot; Asian-Pacific equities, metals mixed

Three-month base metals prices on the London Metal Exchange were firmer this morning, Wednesday August 5, with gains averaging 0.3%.

Pre-market major western equity index futures were also in positive territory, while metals and equities in Asian-Pacific markets were mixed.

  • Western markets seem buoyed by hopes for a stimulus package announcement by the United States this week.
  • China’s Caixin services purchasing managers index (PMI) dropped to 54.1 in July, from 58.4 in June.
  • Gold prices extended its record high to $2,031 per oz.

Base metals
The LME three-month base metals prices were up across the board this morning, although generally only nickel was showing significant gains with a 0.8% rise to $14,100 per tonne, while the rest were up between a marginal gain of $5 per tonne in tin to $17,750 per tonne and zinc that was up by 0.3% at $2,336 per tonne. Copper was up by 0.1% at $6,458.60 per tonne.

The most-traded base metals contracts on the Shanghai Futures Exchange were mixed this morning; September copper led on the downside with a 0.7% decline to 51,340 yuan ($7,356) per tonne, with September aluminium (-0.2%) and October tin (-0.5%) weaker too, while October nickel (0.8%) led on the upside along with gains in September zinc (0.2%) and September lead (0.4%).

Precious metals
Spot gold was recently quoted at $2021.89 per oz, little changed from Tuesday’s close at $2,021.20 and down from a new record high of $2,031 per oz seen earlier Wednesday morning.

Silver was up by 0.2% at $26.04 per oz, platinum was up by 0.5% at $944 per oz, but palladium was down by 0.6% at $2,138.80 per oz.

Wider markets

The yield on US 10-year treasuries was at 0.52% this morning, compared with 0.56% at a similar time on Tuesday, which suggests a pick-up in concern after a brief respite on Tuesday.

Asian-Pacific equities were mixed this morning: the Hang Seng (+0.37%), the Kospi (+1.2%), the CSI 300 (-0.17%), the Nikkei (-0.23%), the ASX 200 (-0.6%)

The US dollar index’s recent bounce has stalled, with the index recently quoted at 93.22, but it is still holding above July 31’s low of 92.54.

The main currencies are for the most part firmer: the euro (1.1805), the Australian dollar (0.7178) and the yen (105.72), while sterling (1.3071) is little changed.

Key data
In addition to the Caixin services PMI data already out and mentioned above, there is services PMI data out across Europe and the US today.

In addition, there is key data on retail sales from the European Union, the US trade balance, US crude oil inventories and in the run up to Friday’s US employment report there is US jobs data out today in the form of the non-farm employment change from Automatic Data Processing (ADP).

US Federal Open Market Committee member Loretta Mester is also scheduled to speak.

Today’s key themes and views

With US stimulus plans set to add to the trillions of dollars of other stimulus that governments around the world have announced, it is hard not to be bullish for metals as a good deal of the stimulus will be used in infrastructure projects.

The question now is how much of that is already reflected in the metals prices, taking into account the demand hit that has been seen in recent months? Or, is it a case of with easy access to cheap money are funds prepared to buy-and-hold in anticipation of supply shortages in the years ahead, which is what we saw in the markets in the mid-2000s when masses of liquidity helped fuel the super cycle.

At face value, the metals look overbought for now and there are risks of pullbacks, but if they are seen, dips are likely to be well supported and we may well move into a two-steps-up, one-step-back trading pattern.

Likewise, after gold’s meteoric rise since breaking above $1,820 per oz, it is looking overbought and is vulnerable to a profit-taking correction, but there is much uncertainty over how the pandemic plays out and over US-China relations, so any dip is likely to be well supported.

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