MORNING VIEW: Broader markets bullish, while metals mainly on back footing

The metals and equity indices were headed in different directions this morning, Tuesday August 4, with equities up and metals down, but good data may well push metals prices higher as the day progresses - especially given better-than-expected US vehicle sales in July.

  • Nasdaq set another record high on Monday.
  • US total vehicle sales rose to 14.5 million units annualized in July, sales were expected to be 14 million units.

Base metals

The London Metal Exchange three-month base metals prices were for the most part weaker this morning, the exception being aluminium that was up by 0.1% at $1,747 per tonne, while the rest were down by an average of 0.3%. Copper was off by 0.3% at $6,460.50 per tonne.

The most-traded base metals contracts on the Shanghai Futures Exchange were more mixed than on the LME this morning. September copper and aluminium and October nickel were up by an average of 0.9%, with copper up by 0.9% at 51,530 yuan ($7,381) per tonne, while the rest of the complex was down by an average of 0.5%.

Precious metals
Spot gold was recently quoted at $1,975.78 per oz, up by 0.1% from Monday’s close, while silver was up by 0.6% at $24.36 per oz, platinum was up by 0.7% at $927.10 per oz and palladium was up by 0.2% at $2,094.50 per oz.

Wider markets
The yield on US 10-year treasuries was at 0.56% this morning, compared with 0.51% at one stage last week – this suggests a pick-up in risk appetite, which would have been supported by Monday’s data on the ISM manufacturing purchasing managers index (PMI), manufacturing prices and vehicle sales.

Asian-Pacific equities were unitedly bullish this morning: the Hang Seng (+1.93%), the CSI 300 (+0.46%), the Nikkei (+1.77%), the ASX 200 (+2%) and the Kospi (+1.2%).

Currencies
The US dollar index is consolidating this morning and was recently quoted at 93.48, this compared with 93.55 at a similar time on Monday and July 31’s low of 92.54.

All the main currencies are also consolidating after pulling back from high ground in recent days: the euro (1.1771), the Australian dollar (0.7129), the yen (106.08) and sterling (1.3075).

Key data
On the economic front, data already out includes Tokyo’s core consumer price index (CPI) that climbed by 0.4% in July, up from 0.2% in June, and Japan’s monetary base that climbed 9.8% in July, up from 6% in June.

Key data out later includes Spanish unemployment change, EU producer price index, US factory orders and US data on economic optimism from Investor's Business Daily (IBD), TechnoMetrica Institute of Policy and Politics (TIPP).

Today’s key themes and views
The metals are looking quite mixed with aluminium, nickel and zinc edging higher but seeing more consolidation along the way, while copper, lead and tin’s upward direction has stalled and they are consolidating in high ground. This is especially so for copper that has not set a fresh high since July 13. These could be bullish continuation patterns and given the underlying trends since the March lows may well be, but while they hang up there is also a danger that some development spooks the weaker longs and a correction unfolds.

Overall, we are bullish for the metals because we expect demand to continue to recover and the spread of the Covid-19 virus to affect production and logistics, but we would not be surprised to see a deeper pullback for consolidation. We should then get a feel for how strong underlying sentiment is by seeing how well supported the metals are.

Likewise, after golds meteoric rise since breaking above $1,820 per oz, it is not surprising that the market is consolidating, especially because the dollar’s downward trend has also paused. But there is much uncertainty over how the pandemic plays out and over US-China relations, so any dip is likely to be well supported.




William Adams

william.adams@fastmarkets.com

Published

William Adams

August 04, 2020

08:30 GMT

London