MORNING VIEW: Broader markets firmer despite mixed economic data, Covid-19 concerns

Asian-Pacific equities and pre-market major western equity index futures were stronger this morning, Tuesday June 30, while base metals prices were for the most part firmer too - this despite Federal Reserve chairman Jerome Powell saying the US economy faces “extraordinary uncertainty”.

  • China’s manufacturing purchasing managers’ index (PMI) climbed to 50.9 in June, from 50.3 in May, but Japan’s industrial production fell by 8.4% year on year in May.
  • World Health Organization warns worst of Covid-19 pandemic is “yet to come”.

Base metals

Three-month base metals prices on the London Metal Exchange were mixed this morning. Copper led on the upside with a 0.7% gain and was recently quoted at $6,008.50 per tonne. This is the first time the red metal price has been above $6,000 since late January, when it was in its initial coronavirus plunge. Nickel and zinc were up by 0.2% and 0.3% respectively, while aluminium and lead were down by 0.1% and 0.2% respectively and tin was untraded - see price table below for more details.

The most-traded base metals contracts on the Shanghai Futures Exchange were firmer this morning, led by gains of around 1% in October nickel, August zinc and August tin. August copper followed with a gain of 0.8% to recently trade at 48,720 yuan ($6,881) per tonne, while August aluminium and August lead were up by 0.5% and 0.1% respectively.

Precious metals
Spot gold prices were down by 0.1% this morning at $1,771.12 per oz while the market consolidates just below last week’s multi-year high that was at $1,779.40 per oz. Silver prices are stuck in a sideways range and were recently quoted at $17.87 per oz, while platinum and palladium were firmer by 0.3% at $817.70 per oz and 0.7% at $1,916.50 per oz respectively.

Wider markets
The yield on US 10-year treasuries was weaker at 0.63% this morning, compared with 0.65% at a similar time on Monday - this has been the lowest it has been for a while now and puts it at odds the strength in broader markets.

Asian-Pacific equities were stronger across the board: the Nikkei (+1.83%), the ASX 200 (+2.12%), the Kospi (+1.93%), the Hang Seng (+0.86%) and the CSI 300 (+1.11%).

Currencies
The US dollar index was buoyant this morning; it was recently quoted at 97.53, this after 97.20 at a similar time on Monday and is holding up near the top of its recent range. Overall, the dollar seems to be consolidating after the fall from the 100 level seen over the March-May period - but the question is whether this consolidation is mapping out a half-way bearish flag on the charts?

The other major currencies were mixed with the yen (107.74) and sterling (1.2297) weaker, while the Australian dollar (0.6880) and the euro (1.1236) were consolidating.

Tuesday is busy day for economic releases. Data out already in addition to that mentioned above, showed Japan’s unemployment rate rise to 2.9% from 2.6%, Japan’s housing starts fall by 12.3% year on year in May and China’s non-manufacturing PMI climb to 54.4 from 53.6.

Later there is data from the United Kingdom on its current account, final gross domestic product and business investment, with European data on French consumer spending and estimates on French, Italian and European Union consumer prices.

US data includes readings on house prices, the Chicago PMI and consumer confidence.

There are also numerous central bank speakers including Andy Haldane and Sir Jon Cunliffe from the UK’s Monetary Policy Committee and John Williams, Lael Brainard, Neil Kashkari and Jerome Powell from the Federal Reserve.

Today’s key themes and views
The base metals are for the most part holding up well; copper is in the driving seat and is extending gains and the others look well placed to follow, although overhead supply seems to be capping the advanced for now.

While we see the potential for greater supply disruptions should Covid-19 directly affect more producers, we still feel the demand damage has been overlooked by the market. Infrastructure spending will be good in the long run, but it takes a lot of time for infrastructure spending promises to turn into order-flow. In addition, if equities pullback, then metals are likely to follow too. As such, we would be wary about whether the market can hold on to recent gains.

Gold prices are holding up just below June 24’s highs and the fact gold prices are high and treasury yields are low, suggests a strong level of safe-haven interest from investors.




William Adams

william.adams@fastmarkets.com

Published

William Adams

June 30, 2020

07:56 GMT

London