China’s CSI 300 and Hong Kong’s Hang Seng indices were weaker this morning, while in other areas the focus seems to be on economic recovery and equities are stronger as a result. This despite the fact that the opening up of economies in some areas is happening before the Covid-19 virus has been brought under control, and that runs the risk of the virus spreading deeper into those economies.
- Japan looking at providing $1.1 trillion stimulus package.
- France injects $8 billion into the French car industry, including increased subsidies for electric vehicles and a ‘cash for clunkers’ program.
Three-month base metals prices on the London Metal Exchange were mainly weaker this morning with tin ($15,395 per tonne) the only one in positive territory, up by just 0.1%. The rest were down by an average of 0.6%, led by 1.1% falls in nickel and zinc, and with copper down by 0.4% at $5,347 per tonne - see table below for more details.
Volume into the weaker tone on the LME has been light with 3,254 lots traded as of 6.10am London time, compared with 6,244 lots at a similar time on Tuesday.
The most-traded base metals contracts on the Shanghai Futures Exchange were also mixed with August nickel and July zinc down by 1% and 0.5% respectively, while the rest were up by an average of 0.7%. July copper was up by 0.2% at 43,890 yuan ($6,152) per tonne.
Spot gold prices were slightly lower this morning with prices recently off by 0.2% at $1,707.69 per oz, but this is down significantly from $1,733.27 per oz at a similar time on Tuesday. Silver prices were down by 0.5%, while the platinum group metals were both up by 0.3%.
The yield on benchmark US 10-year treasuries has eased slightly and was recently quoted at 0.69%, this after being at 0.7% at a similar time on Tuesday - the range in recent weeks has been 0.61-0.74%.
Asian-Pacific equities were mixed this morning: the Nikkei (+0.71%), the ASX 200 (+0.29%), Kospi (0.01%), China’s CSI 300 (-0.51%) and the Hang Seng (-0.79%).
The US dollar index is weaker and was recently quoted at 99.11 - the range since early April has been 98.54-100.87.
The other major currencies we follow are for the most part firmer: the euro (1.0963), the Australian dollar (0.6646) and sterling (1.2328), while the yen (107.54) is consolidating.
The Chinese yuan (7.1545) is approaching the weaker levels it was at in August last year, when it hit a low of 7.1842. This suggests the market is readying for an escalation in the trade war.
Wednesday’s economic agenda is light and focused on the US where there is data on the Richmond manufacturing index that is expected to recover to -40 in May, from -53 in April, and the Federal Reserve will release the analysis of its latest beige book.
In addition, European Central Bank president Christine Lagarde is due to speak.
Today’s key themes and views
We continue to expect trading in the base metals to be choppy within the overall medium-term upward trend, with hopes for a recovery to boost buying while trade war rhetoric is likely to bring bouts of weakness.
Confidence for the metals may be further boosted now because governments seem to be following up from their earlier monetary stimulus with fiscal stimulus to go hand-in-hand with the opening up their economies, as seen by the latest announcements from Japan and France.
Given the pick-up in geopolitical tensions it is surprising that gold is not firmer, but the broader shift to risk-on may be prompting some initial profit-taking in gold too. We expect gold to remain well supported overall but may take a backseat while investors are venturing back into equities.