MORNING VIEW: Base metals prices mixed, but broader markets have second thoughts about coronavirus impact

Broader markets, mainly equity indices, have been fairly complacent about the potential negative economic impacts of the coronavirus (2019-nCov). But this morning, Tuesday February 18, that may be changing with Asian equities down across the board as more companies and countries get jittery.

Apple warns it will miss its sales target, South Korea warns it is in an emergency situation and calls for “all possible measures to stimulate the economy” and pre-market western equity indices are looking weaker this morning, although base metals on both the London Metal exchange and the Shanghai Futures Exchange are mixed.

  • Spot gold prices are holding strong at $1,585.44 per oz, while US ten-year treasury yields are weaker at 1.55%

Base metals
Three-month base metals prices on the London Metal Exchange were mixed this morning, but down by an average of 0.2%. Aluminium and tin were up by 0.4% and 0.1% respectively, while the rest were down by an average of 0.5%, with copper off by 0.4% at $5,801.50 per tonne - down from Monday’s peak at $5,828.50 per tonne.

Trading volumes have been slightly weaker compared with recent days, with 6,398 lots traded as of 5.40am London time, against an average of 7,906 lots at a similar time across last week.

The most-traded base metals contracts on the Shanghai Futures Exchange were also mixed; April nickel led on the downside with a 1.4% drop, April zinc was down by 0.2%, while the rest were up by an average of 0.2%, with April copper up by 0.1% at 46,280 yuan ($6,628) per tonne.

The spot copper price in Changjiang was up by 0.3% at 45,910-46,000 yuan per tonne, while the LME/Shanghai copper arbitrage ratio was at 7.98, compared with 7.96 on Monday.

Precious metals
Spot gold prices were up by 0.1% at $1,585.44 per oz this morning, while the rest of the precious metals were up by an average of 0.5%.

Wider markets
The yield on benchmark United States 10-year treasuries was weaker and was recently quoted at 1.55%, compared with 1.58% at a similar time on Monday. The German 10-year bund yield was unchanged and was recently quoted at -0.4%.

Asian equities were weaker this morning: Nikkei (-1.4%), the Kospi (-1.48%), the Hang Seng (-1.34%), China’s CSI 300 (-0.84%) and the ASX 200 (-0.16%).

The dollar index (99.19) continues to edge higher, it is now the highest it has been since October last year. The other major currencies we follow are on a back footing: euro (1.0831), sterling 1.2991), the yen (109.78) and the Australian dollar (0.6691).

Key data
Tuesday’s economic data releases include the latest on United Kingdom employment and German and European Union economic sentiment data from Zentrum fur Europaische Wirtschaftsforschung (ZEW). With United States data including: the Empire State Manufacturing Index, the National Association of Home Builders housing market index and treasury international capital long-term purchases.

In addition, there is an EU Economic and Financial Affairs Council meeting and US Federal Open Market Committee member Neel Kashkari is speaking.

Today’s key themes and views
The fact the metals are for the most part consolidating while equity indices are weaker is not surprising because the metals have had a much more muted rebound off their initial correction in recent weeks than equities. But, metal prices may well follow equities lower if equities now gather some downward momentum. Given China is a net importer of metals, it would also seem logical that the slowdown in activity in China will hit demand for metals, even if only temporarily.

Gold prices are edging higher again, despite the strength of the dollar, which is a sure sign of increased haven interest - in this uncertain climate that is not surprising. We expect gold to remain underpinned until the coronavirus is contained.


February 18, 2020

07:19 GMT