- Traders wary of contagion from weaker equity markets
- Asia-Pacific equities mainly weaker, especially in Taiwan
- Markets focused on Wednesday’s Consumer Price Index (CPI) data from United States
LME three-month base metals prices were mixed and little changed this morning, with the complex up on average by just 0.1%, with aluminium ($2,543 per tonne) the biggest mover with a 0.4% gain. Tin ($29,985 per tonne) was down by 0.1% and lead ($2,219.50 per tonne) was unchanged. Copper was up by 0.3% at $10,585 per tonne.
The most-active SHFE base metals contracts were also mixed, but the June contracts for copper, aluminium, nickel and tin were up by an average of 0.9%, while the lead and zinc contracts were down 0.4% and 0.2% respectively. June copper was recently up by 1% at 76,630 yuan ($11,900) per tonne.
Precious metals were mainly weaker this morning, with the exception of palladium ($2,943.30 per oz), which was up by 0.1%. The rest were weaker, with gold ($1,829.37 per oz), silver ($27.36 per oz) and platinum ($1,233.80 per oz) down by 0.4%, 0.9% and 0.2% respectively.
The yield on US 10-year treasuries was firmer this morning at 1.62%, up from 1.6% at a similar time on Tuesday. Given concerns on inflation, the yield is holding back quite well.
Asia-Pacific equities were mainly weaker on Wednesday: the ASX 200 (-0.77%), the Nikkei (-1.37%), the Kospi (-1.54%) and the CSI 300 (-0.02%), although the Hang Seng (+0.15%) was higher. The Taiwan Index was hit particularly hard and closed down by 4.26%, having at one stage been down by 8.5% - concerns about increasing lockdown measures seem to have been the cause.
The US Dollar Index is consolidating in low ground and was recently at 90.32, little changed from 90.26 at a similar time on Tuesday.
With the dollar pausing, so too were the other major currencies after their recent gains: the euro (1.2128), sterling (1.4129), the Australian dollar (0.7802) and the yen (108.82).
Wednesday’s economic agenda is very busy, see table below for details - the main focus will be on the CPI data out from Europe and, particularly, the US. We are also expecting Chinese data on new loans at some stage over the next few days.
The EU is scheduled to release its economic forecast and the Bank of England governor Andrew Bailey is scheduled to speak, as are US Federal Open Market Committee members Richard Clarida and Raphael Bostic.
Today’s key themes and views
With the equities showing some weakness, traders are likely to be wary in case the metals follow. US CPI data is in focus today. If it shows stronger than expected inflation, then bond yields may well accelerate higher, which is likely to put further strain on high valued equities. It will also suggest the FOMC may be falling too far behind the curve.
Gold prices are holding up in relatively high ground and we expect them to start moving again once the CPI data is out. The question is whether they will initially react positively if the data points to higher inflation, or whether they will be subject to a sell-off if there is a dash-for-cash. As such, we would wait for whatever the initial reaction is to play out before stepping in.