MORNING VIEW: Broader markets mixed amid numerous crosswinds

Asian-Pacific equities were mixed this morning, Wednesday July 15, with markets in China and Hong Kong lower, while other markets in the region and pre-market major western equity markets were firmer.

The base metals traded on the London Metal Exchange and Shanghai Futures Exchange gave a similarly divergent performance; three-month base metals prices on the LME mostly edged higher this morning, while SHFE prices broadly weakened.

  • Vaccine hopes are dominating, as are hopes that the European Union may be able to agree a rescue fund, while the early corporate earnings season has not unveiled any horrors yet.
  • United States-China tensions are running high.

Base metals
Three-month base metals prices on the LME were either unchanged or slightly higher this morning with an average gain of 0.1%, led by a 0.3% rise in aluminium, which recently traded at $1,688 per tonne. Copper was up by 0.1% at $6,506.50 per tonne.

Conversely, the most-traded base metals contracts on the SHFE were generally weaker this morning. The exception was August copper that was up by 0.1% at 52,460 yuan ($7,495) per tonne, while the other base metals were down by an average of 0.7%. The weakness on the SHFE follows the general direction seen on the LME on Tuesday, when the complex closed down by an average of 1.2%.

Precious metals
Spot gold prices were little changed this morning, compared with Tuesday close; prices were recently quoted at $1,808.27 per oz, but this was up by just over $10 per oz from where they were at a similar time on Tuesday morning.

Silver ($19.27 per oz) was up by 0.1%, platinum ($829 per oz) was off by 0.3% and palladium ($1,971.30 per oz) was up by 0.1%.

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

Asian-Pacific equities were weaker this morning: the Hang Seng (-0.24%), the CSI 300 (-0.43%), the Nikkei (+1.46%), the Kospi (+0.95%) and the Australia’s ASX 200 (+1.68%). The Chinese markets are no doubt weaker due to US-China tensions.

Currencies
The US dollar index has resumed its weaker trend and was recently quoted at 96.16, the bear flag formation we have been watching now seems to have been triggered, but it will need a drop below 95.70 to confirm that. The yuan was holding on to most of its recent gains this morning and was recently quoted at 6.9975, compared with 6.9953 at a similar time on Tuesday.

The other major currencies were mixed with the euro (1.1404) and the Australian dollar (0.7002) firmer, while sterling (1.2586) and the yen (107.24) were consolidating.

Key data
In data already released on Wednesday, the Bank of Japan kept its policy rate at -0.1%.

Later there is a host of price data out in the United Kingdom, including data on consumer, producer and house price indices, while US data includes the Empire State Manufacturing Index, import prices, industrial production, capacity utilization, crude oil inventories and the Beige Book.

In addition, UK Monetary policy Committee member Silvana Tenreyro and Federal Open Market Committee member Patrick Harker are speaking.

Today’s key themes and views
The base metals have all put in strong upside runs in recent weeks, but some hesitation appeared on Tuesday and prices are consolidating this morning in what seems to be quiet conditions. Given the gains of late and the likelihood for increased volatility in equities while they react to US corporate earnings, we would not be surprised if some pullback in prices emerges.

But it may not last because the trends are strong and Covid-19 production disruptions, the threat of strikes in Chile, potential for Chinese stockpiling, promises of infrastructure spending, plus institutional investor access to cheap financing, may be enough to offset the demand hit seen in recent months.

Gold prices once again pulled back on Tuesday but ran into support, and are now back in high ground. While there is a danger that prices could pullback further if there is a correction in broader markets, we would expect dips to be short-lived and the overall bull market to continue given the state of uncertainty.

There will be no Morning View on Thursday July 16
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William Adams

william.adams@fastmarkets.com

Published

William Adams

July 15, 2020

08:36 GMT

London