MORNING VIEW: Markets weaker as changes in coronavirus data cause more uncertainty

A spike in the reported death toll from the novel coronavirus (2019-nCov) in China led to a pullback in risk asset prices in early trading this morning, Thursday February 13, but the spike is not all what it seems.

The sudden jump in the number of new cases reported was due to a change in how the infection is being reported, rather than a sudden jump in people actually being infected. The latest data suggests 1,368 deaths, but encouragingly 5,963 people have recovered.

As the metals have been more circumspect in recent days about the potential fallout from the virus, their reaction this morning has been somewhat muted.

  • LME base metals prices were down by an average of 0.6% at their lows this morning, but they are starting to pare losses as European markets opens.
  • Asian equities were for the most part lower this morning.
  • The spot gold price is higher again and was recently quoted at $1,574 per oz, compared with $1,565 per oz at a similar time on Wednesday.

Base metals
Three-month base metals prices on the London Metal Exchange were for the most part weaker with prices down by an average of 0.2% as at 5.41am London time, zinc was the metal bucking the trend with a 0.1% gain to $2,157.50 per tonne. Earlier this morning, prices were down by an average of 0.6%, but price dips are attracting buying. Nickel leads on the downside with a 0.4% drop to $13,100 per tonne, while copper was off by 0.3% at $5,743 per tonne.

Trading volumes was above average with 6,357 lots traded as at 5.41am London time.

Despite the jump in the data about the virus, the most-traded base metals contracts on the Shanghai Futures Exchange were for the most part firmer. The exceptions were April aluminium that was 0.4% weaker and June tin was down marginally, while the rest were up between 0.2% and 0.3%. April copper contract was up by 0.2% at 45,560 yuan ($6,536) per tonne.

The base metals’ reaction on SHFE suggests Chinese traders have not been spooked by the revised data.

The spot copper price in Changjiang was up by 0.2% at 45,420-45,420 yuan per tonne, with the LME/Shanghai copper arbitrage ratio was at 7.99, compared with 7.96 on Wednesday.

Precious metals
Spot precious metals prices were up by an average of 0.5% this morning, led by a 0.7% gain in silver to $17.64 per oz, platinum and palladium were up by 0.5% and 0.6% respectively, while gold was up by 0.2% at $1,573.92 per oz.

Wider markets
The yield on benchmark United States 10-year treasuries has weakened and was recently quoted at 1.59%, compared with 1.61% at a similar time on Wednesday. The German 10-year bund yield was firmer and was recently quoted at -0.38%, compared with -0.39% at a similar time on Wednesday.

Asian equities were for the most part weaker this morning, but not by much, with the Nikkei down by 0.14%, the Kospi down by 0.24%, the Hang Seng down by 0.25% and China’s CSI 300 down by 0.43%, while the ASX 200 was up by 0.21%,

The dollar index (98.99) is extending gains as the US seems one of the stronger economies in this time of stress and is therefore attracting investments from abroad.

The euro is weaker (1.0874) as the market fears the coronavirus in China might hit supply chains to Europe and thereby affect economy, which in turn could lead to easier monetary policy. The yen (109.77), sterling (1.2951) and the Australian dollar (0.6716) are consolidating.

Key data
Economic data out already this morning showed Germany’s consumer price index (CPI) fell by 0.6%, although this is quite a choppy data series as previously it was up by 0.5% and before that was down by 0.8%. Later the European Commission will release its economic forecast.

Data out in the US includes: CPI, initial jobless claims, natural gas storage and US Federal Open Market Committee member John Williams is speaking at a panel discussion at the New York Bankers Association.

Today’s key themes and views
The revision to the virus data adds more uncertainty as to when the outbreak will be brought under control and as such, we remain in limbo as to what the full impact of the virus will be on China’s economy and indeed the global economy if supply lines continue to be disrupted. Hopefully in the days ahead it will become clearer as to how much disruption there is. Until more is known, we expect prices to remain choppy.

In line with increased uncertainty surround the fallout from the virus, it is not surprising that gold prices have had found some support, we expect gold to remain underpinned until the virus is contained.


February 13, 2020

08:34 GMT