MORNING VIEW: Markets firmer on Trump’s ‘Big Deal’ tweet

Broader markets are upbeat this morning, Friday December 13, because hopes are running high that a preliminary United States-China trade will be signed before new tariffs come into force on Sunday as well as following the United Kingdom’s general election result that means a Brexit deal moves forward.

In a post on social media platform Twitter, US President Donald Trump said: “Getting very close to a big deal with China. They want it and so do we!" Markets may, however, get nervous later today if there is no follow-up news on a trade deal ahead of markets closing.

  • Asian equities are upbeat with many markets up by 2%.
  • Haven assets are weaker while risk-on picks up.
  • All eyes on the wording of the preliminary trade deal, if one materializes.

Base metals
Three-month base metals prices on the London Metal Exchange were up across the board by an average of 0.7% on Friday morning, led by a 1.1% gain in lead that was recently quoted at $1,950 per tonne. Copper lagged behind with a 0.4% gain to $6,183.50 per tonne.

Trading volume has been strong with 8,114 lots traded as at 6.41am London time.

In China, the most-traded base metals contracts on the Shanghai Futures Exchange were mixed, with February copper and January tin off by 0.2% and 0.7% respectively, with copper recently quoted at 49,040 yuan ($6,976) per tonne. The rest of the metals were up by an average of 0.4%.

The spot copper price in Changjiang was up by 20 yuan per tonne at 48,880-49,000 yuan per tonne and the LME/Shanghai copper arbitrage ratio was at 7.93, having been around 8.03 earlier in the week, which implies the strength in copper is being seen on the LME more than on the SHFE.

Precious metals
The precious metals were mixed this morning with spot gold and palladium up by 0.1% and 0.4% respectively, while silver and platinum were down by 0.3% and 0.7% respectively. Gold was recently quoted at $1,466.07 per oz, having climbed to $1,486.70 per oz at one stage on December 12.

Wider markets
The spot Brent crude oil price is challenging recent highs, it was recently up by 0.26% at $64.62 per barrel, compared with Thursday’s close.

The yield on benchmark US 10-year treasuries has climbed on expectations for an imminent trade deal. It was recently quoted at 1.9049% compared with around 1.8232% at the start of the week. The German 10-year bund yield was also firmer and was recently quoted at -0.2300%, compared with -0.3000% at a similar time on Monday.

Asian equities were bullish: the Nikkei (+2.55%), the Hang Seng (+2.28%), the ASX 200 (+0.46%), China’s CSI 300 (+1.98%) and the Kospi (+1.54%).

This follows a strong performance in Western markets on Thursday, where in the US, the Dow Jones Industrial Average closed up by 0.79% at 28,132.05; in Europe, the Euro Stoxx50 closed up by 0.51% at 3,706.35.

Currencies
The dollar index broke lower on Thursday and is consolidating this morning - it was recently quoted at 96.88, compared with Thursday’s low of 96.60.

Sterling not surprisingly has rallied because there is now less uncertainty over Brexit and was recently quoted 1.3427. This also seems to be boosting the euro (1.1169), while the Australian dollar (0.6924) is stronger on the back of trade hopes. Safe-haven yen (109.61) is weaker while markets may be able to sigh with relief over the trade deal.

Key data
Economic data out already shows a Japan’s industrial production fell by 4.5% month on month in October, but this data series tends to be choppy, while German wholesale price index fell by 0.1% in November from the prior month, as it did the month before. Key data out later in the US includes retail sales, import prices and business inventories and there is data on UK leading indicators.

In addition, US Federal Open Market Committee member John Williams is speaking.

Today’s key themes and views
High hopes for a US-China trade deal are boosting sentiment across the base metals and the weaker dollar will be helping too. Much now depends on the detail of the deal, assuming it is signed and sealed today. Given how downtrodden the metals have been since the trade war started - the LME Index is down 20% compared with the highs in June 2018 - the rallies could have considerable way to run.

Gold prices have pulled back and are above recent lows, which suggests they are holding up relatively well, but they may struggle to do that if a deal is indeed signed.




Published

December 13, 2019

09:00 GMT

London