MORNING VIEW: Volatility increased across markets overnight with mixed signals over US-China trade

Markets underwent a knee-jerk downward reaction earlier this morning, Tuesday June 23, when it looked like the phase one trade deal between the United States and China was over, but markets snapped back once US President Donald Trump announced the deal was “fully intact”.

The fact that a White House official said it was “over” only to retract that later suggests there have at least been discussions about the US abandoning the deal, so is the trade deal on a slippery slope?

  • Asian-Pacific equity prices were for the most part firmer, suggesting the market is not concerned about the trade deal.
  • Japan’s flash manufacturing purchasing managers index (PMI) dropped to 37.8 in June, down from 38.4 in May; it had been expected to come in at 39.5.

Base metals
Three-month base metals prices on the London Metal Exchange were for the most part weaker this morning with nickel unchanged at $12,620 per tonne, while the rest were down by between 0.2% and 0.4%, with copper down by 0.3% at $5,877 per tonne. Volume has been above average with 8,228 lots traded as of 6.24am London time, compared with 4,668 lots at a similar time on Monday morning.

The most-traded August base metals contracts on the Shanghai Futures Exchange were split into two camps this morning; copper, aluminium and tin were up by 0.2%,0.6% and 0.5% respectively, with copper recently quoted at 47,630 yuan ($6,731) per tonne, while nickel, zinc and lead were down by 0.9%, 0.3% and 0.6% respectively.

Precious metals
Spot gold prices, having gapped higher on Monday morning, were trading around a similar level this morning; prices were recently quoted at $1,752.69 per oz, compared with $1,752.17 per oz at a similar time on Monday.

Spot silver prices were down by 0.3% at $17.68 per oz, while platinum ($815.40 per oz) and palladium ($1,930 per oz) were down by 1% and 0.6% respectively from their closes on Monday.

Wider markets
The yield on US 10-year treasuries is consolidating and was recently quoted at 0.7%, compared with 0.69% at a similar time on Monday morning. The weaker yields of late suggest there is a degree of haven interest, which the firmer gold price also suggests.

Asian-Pacific equities were mainly firmer this morning: the Hang Seng (+0.83%), the Nikkei (+0.52%), China’s CSI 300 (+0.16%) and the Kospi (+0.52%), while the ASX 200 (-0.14%) was bucking the trend.

Currencies
The US dollar index headed lower yesterday and was consolidating again this morning; it was recently quoted at 97.09, this after 97.51 at a similar time on Monday.

The weaker dollar has provided some lift to most of the other major currencies, although they are consolidating this morning: the euro (1.1264), the Australian dollar (0.6905) and sterling (1.2449), although the yen (107.18) is weaker.

Key data
Tuesday’s economic agenda is busy with flash manufacturing and services PMI data out across Europe and the US. In addition, there is US data on new home sales and the Richmond manufacturing index. The PMI data may well set the tone for today's trading.

Today’s key themes and views
Base metals prices are generally consolidating with an upside bias and have been holding up well, but as we have mentioned in recent weeks, with the physical market outside of China reportedly quiet, prices may have run ahead of the fundamentals. If equities correct, then we would expect metals prices to follow. The confusion over the US-China trade deal suggests trade war rhetoric may be about to surface again.

Gold prices are trading in high ground and that suggests there has been an increase in investors’ caution - given the strength of the rebound in risk-assets off the March lows, which seem difficult to justify given the state of the global economy, more investors may be getting concerned that equities have run ahead of themselves.




William Adams

william.adams@fastmarkets.com

Published

William Adams

June 23, 2020

08:07 GMT

London