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May 2020 | Base Metals


Broader markets generally buoyant on positive Covid-19 vaccine data, metals prices consolidate

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Base metals prices are consolidating this morning, Tuesday February 19, following strong performances on Monday, when markets in general reacted to reports that a Covid-19 virus vaccine showed some encouraging results in an early-stage trial.

The base metals on the London Metal Exchange are little changed this morning while they consolidate after Monday’s strong gains that saw prices close up by an average of 3%. The most-traded base metals contracts on the Shanghai Futures Exchange are, however, up across the board, showing gains averaging 1.5% this morning.

* Asian-Pacific equity indices are showing strong gains, which follows Monday’s 3.85% gain in the Dow Jones Industrial Average.
* Pre-market major western equity indices are seeing some follow-through strength, with gains either side of 0.2%.
* Gold prices at $1,736 per oz have pulled back from Monday’s $1,765-per-oz high.

Base metals
Three-month base metals prices on the LME have been rangebound so far this morning, but a volume of 6,264 lots is already above average for this time of day, suggesting good two-way interest. Copper was recently quoted at $5,344 per tonne, having earlier been up to a high of $5,377.50 per tonne, which was a fresh high since the March low. Zinc also set a fresh high at $2,038 per tonne, while the rest are back near the highs of their recent trading ranges.

The most-traded base metals contracts on the Shanghai Futures Exchange were up between 0.7% for June lead and 2.5% for July nickel, with July copper up 1.6% at 43,590 yuan ($6,130) per tonne.

Precious metals
While other markets strengthened on Monday, spot gold prices struggled to hold on to their earlier gains, which saw prices pull back to the upper levels of its earlier range that was centered around $1,730 per oz. So far this morning prices have traded within a $1,733.05-1,740.60 per oz range.

Spot silver prices were recently quoted at $17.10 per oz, this after Monday’s high of $17.54 per oz. The gold/silver ratio is holding at around 1:102, having been over 1:120 in March.

Platinum had a very volatile day’s trading on Monday, but it ended the day up by 1.6% at $813 per oz and was recently quoted at $808.50. Palladium prices are up by 1.2% at $2,013.80 per oz this morning, this after a 5.9% gain on Monday.

Wider markets
The yield on benchmark US 10-year treasuries is stronger this morning, it was recently quoted at 0.70%, this after being at 0.65% at a similar time on Monday - it is now back near the upper end of the 0.61-0.71% range it has held in recent weeks.

Asian-Pacific equities were stronger this morning: the Nikkei (+1.94%), China’s CSI 300 (+0.75%), the ASX 200 (+1.92%), the Kospi (+2.28%) and the Hang Seng (+1.87%).

Currencies
The US dollar index is weaker this morning, it was recently quoted at 99.63, this after 100.33 at a similar time on Monday. The range since the start of April being 98.54-100.87.

The weaker dollar is underpinning some of the other major currencies we follow: the euro (1.0909), the Australian dollar (0.6516) and sterling (1.2196), although the yen (107.39) is weaker, which may be a sign that safe-havens are in less demand this morning.

Key data
Japan’s revised industrial production data showed a 3.7% decline in March, this was after a 0.3% fall in February. Later there is data out on the United Kingdom’s employment and readings on European Union and German economic sentiment from Zentrum fur Europaische Wirtschaftsforschung (ZEW).

US data includes building permits, housing starts and leading indicators.

In addition, there are Ecofin and Group Seven (G7) meetings and speeches from Federal Reserve chairman Jerome Powell and Federal Open Market Committee member Neel Kashkari.

Today’s key themes and views
Monday’s rebounds in the base metals and broader markets suggests sentiment picked up and gained momentum after news emerged that a potential vaccine had shown some encouraging results in an early-stage trial.

A vaccine that works would be a game-changer, even if it takes months to come about, because it would provide a strong light at the end of coronavirus tunnel and might be enough to encourage businesses to invest more in the recovery and sooner.

The markets’ reaction to the news means that even if the markets turn negative again in the days and weeks ahead, pieces of good news could emerge at any time and that may be enough to dissuade shorts.

While broader markets reacted positively on Monday it is not surprising there was some rotation out of havens and into riskier assets, but we still expect gold will remain well supported given all the debt generation that the pandemic has created and the legacy it produces.

William Adams
Fastmarkets