MORNING VIEW: Markets weaker, nervous in case US corporate earnings trigger a reality check

Asian-Pacific equities and the base metals trading on the London Metal Exchange were weaker this morning, Tuesday July 14, with profit-taking emerging in the face of increased Covid-19 cases and earnings uncertainty.

  • China’s imports and exports climbed in June, a sure sign of improved economic conditions, albeit after months of hardship.
  • United States President Donald Trump said last week he was not ready to talk about phase two of a US-China trade deal given relations with China are damaged.

Base metals

Three-month base metals prices on the LME were down across the board this morning with an average fall of 1.2% across the complex, led by a 2% drop in zinc to $2,209.50 per tonne. Lead and copper were both down by 1.3%, with the latter at $6,463 per tonne. This weakness comes after strong performance on Monday, when the complex closed with gains averaging 1.5%.

As a result of the strong gains on the LME yesterday, the most-traded base metals contracts on the Shanghai Futures Exchange were mixed this morning, with the August contracts for copper, aluminium and zinc down between 0.1% for zinc and 0.6% for aluminium, with copper down by 0.4% at 52,140 yuan ($7,429) per tonne. August lead was up by 0.1%, September tin was up by 0.7% and October nickel was up by 1%.

Precious metals
Spot gold prices were down by 0.3% this morning, compared with Monday’s close, and were recently quoted at $1,797.64 per oz, compared with $1,806.43 per oz at a similar time on Monday morning. The weakness in gold and across most other asset classes suggests broade-based but light profit-taking into US earnings season.

Silver ($18.99 per oz) was down by 0.5%, platinum ($828 per oz) was off by 0.2% and palladium ($1,983 per oz) was bucking the trend with a 0.4% gain.

Wider markets
The yield on US 10-year treasuries was at 0.63% this morning, unchanged from a similar time on Monday.

Asian-Pacific equities were weaker this morning: the Hang Seng (-1.68%), the Nikkei (-0.9%), the Kospi (-0.23%), the Australia’s ASX 200 (-0.61%) and the CSI 300 (-2.27%).

Currencies
The US dollar index has been consolidating in middle-to-low ground this morning - it was recently quoted at 96.56, compared with 96.15 at a similar time on Monday. The yuan was holding on to most of its recent gains this morning and was recently quoted at 6.9953.

The other major currencies were mainly consolidating too: the euro (1.1344), the Australian dollar (0.6947) and the yen (107.26), while sterling (1.2545) was weaker.

Key data
In addition to Chinese trade data, other data showed retail sales in the United Kingdom grew by 10.9% year on year in June, it had been expected to rise by 2.5%, and revised industrial production in Japan fell by 8.9% month on month in May - the initial reading showed an 8.4% decline.

Later, there is data on German consumer prices (CPI), a barrage of UK data including gross domestic product, construction output, goods trade balance, index of services and manufacturing and industrial production.

In Europe, there is data on European Union industrial production, EU and German ZEW economic sentiment. US releases out later include CPI and the National Federation of Independent Business’ small business index.

In addition, Federal Open Market Committee member Lael Brainard is speaking.

Today’s key themes and views
The base metals have all put in strong upside runs in recent weeks, but this morning some weakness seems to be emerging and we would put that down to profit-taking and consolidation while the markets prepare for increased volatility that could be sparked by some shocks in US corporate earnings.

For the base metals, the spread of Covid-19 has both bullish and bearish implications; of late the supply disruptions seem to have dominated, but because the virus continues to spread in many regions and second waves are also being seen, the market’s attention may turn to the demand side again - at least for a while.

Gold prices have pulled back and as is often the case may not be immune to a broader pullback in markets, but we would expect dips to be short-lived given the state of uncertainty.




William Adams

william.adams@fastmarkets.com

Published

William Adams

July 14, 2020

08:43 GMT

London