MORNING VIEW: Metals pause for thought, but remain buoyant overall

Markets were mixed this morning, Friday July 3, with Asian-Pacific equities generally higher and pre-market western equity index futures weaker, while the base metals and precious metals were mixed.

  • China’s Caixin services purchasing managers index (PMI) climbed to 58.4 in June, from 55 previously.
  • James Bullard, president of the Federal Reserve Bank of St Louis, told the Financial Times that a wave of business failures owing to the pandemic could still trigger a financial crisis.

Base metals
Three-month base metals prices on the London Metal Exchange were mixed this morning. Copper led on the downside for a change with a 0.9% fall and was recently quoted at $6,039 per tonne, while nickel was up by 0.9% at $13,030 per tonne. Aluminium, lead and zinc were all down by 0.3% and tin was up by 0.2% - see table below for more details.

The most-traded base metals contracts on the Shanghai Futures Exchange were also mixed this morning, with October nickel up by 2.4% and August lead down by 1.2%, while August copper was off by 0.4% at 49,060 yuan ($6,939) per tonne. August aluminium and zinc were both up by 0.1% and September tin was up by 0.9%.

Precious metals
Spot gold prices were down by 0.4% this morning at $1,775.41 per tonne, this after pulling back to a low of $1,757.30 per oz on Thursday. Silver ($18.02 per oz), platinum ($809.50 per oz) and palladium ($1,908.30 per oz) were holding within their sideways trading patterns this morning.

Wider markets
The yield on US 10-year treasuries was at 0.67% this morning, unchanged from a similar time on Thursday, but up from Tuesday’s low of around 0.63%.

Asian-Pacific equities were stronger this morning: the ASX 200 (+0.42%), the CSI 300 (+0.97%), the Nikkei (+0.72%), the Kospi (+0.82%) and the Hang Seng (0.9%).

The US dollar index was consolidating this morning; it was recently quoted at 97.22, this after 96.97 at a similar time on Thursday.

With the dollar flat, the other major currencies were consolidating too: sterling (1.2477), the Australian dollar (0.6938), the euro (1.1237) and the yen (107.52).

Key data
Friday’s economic agenda is focused on services PMI data, but there is also data on France’s government budget balance.

Today’s key themes and views
Most of the base metals are rangebound, while copper’s rally seems to be consolidating today, with prices pulling back from recent highs. Nickel and aluminium look set to challenge recent highs, but a pullback in copper may delay that.

While we see the potential for greater supply disruptions should Covid-19 directly affect more producers, we still feel the demand damage may be being underestimated. As such, we would be wary about whether the market can hold on to recent gains. That said, even in the space of writing this report, pre-market western equity markets have turned positive having earlier been negative, so overall sentiment seems to be positive.

Gold prices pulled back on Thursday, but dips continue to be bought - with the rapid spread of Covid-19 in the United States, raised geopolitical tension between the US and China, combined with the global damage that the pandemic is causing, we expect gold prices will remain underpinned.

William Adams


William Adams

July 03, 2020

08:53 GMT