Base metals prices on both the London Metal Exchange and Shanghai Futures Exchange were mixed on the morning of Wednesday April 6, with the strong dollar - which is at its highest level since May 2020 - likely to be a strong headwind.
* Services purchasing managers indices (PMI) in Europe and the US continued to generally show strong expansions, while those in China sank
* Hawkish talk from the US Federal Reserve boosted US treasury yields and drove the dollar higher
* Will China’s Covid-19 surge dampen the demand outlook for metals?
* Europe prepares to ban coal imports from Russia
Base metals
Three-month base metals prices on the LME were mainly weaker this morning, with aluminium the only metal showing a gain, up by 0.1% at $3,457 per tonne. The rest of the complex, with the exception of nickel (which has yet to open), were down by an average of 0.3%. This follows a generally stronger performance on Tuesday, when the base metals complex was up by an average of 0.7% - albeit skewed by a 2.8% gain in nickel to $33,610 per tonne.
The most-traded May contracts on the SHFE were mainly stronger. The exception was aluminium, which was down by 0.9%, while the rest were up by an average of 0.8%, led by a 1.9% rise in zinc. Nickel was up by 0.4%.
Precious metals
The precious metals were firmer, with gold and silver little changed but spot gold up by $0.50 per oz at $1,923.48 per oz. Platinum and palladium were stronger with gains of 0.3% and 0.8% respectively.
Wider markets
US 10-year treasuries yields were stronger and were recently at 2.61%, up from 2.42% at a similar time on Tuesday.
Those higher treasuries yields have applied downward pressure on Asia-Pacific equities this morning: the Nikkei (-1.38%), the ASX 200 (-0.57%), the Kospi (-0.84%) were all down, while the CSI 300 (0.1%) and the Hang Seng ($1.27%) were up.
Currencies
The US Dollar Index was on the rise this morning, it has broken above resistance at 99.42 and was recently at 99.70, with the stronger bond yields no doubt underpinning the move. The next target is likely to be the 103-103.83 range - the highs of 2017 and 2020.
With the dollar stronger, most of the other major currencies were weaker: the euro (1.0880), the Japanese yen’s (124.00) and sterling (1.3055), while the Australian dollar (0.7615) was holding its gains from Tuesday - no doubt helped by strong commodity prices and Tuesday’s less dovish statement from the Reserve Bank of Australia.
Key data
Economic data out today showed China’s Caixin services PMI collapsed to 42.0 in March, from 50.2 in February. Germany’s factory orders fell 2.2% month on month in February, after a 2.3% gain in January.
Later there is data on the United kingdom's construction PMI, EU producer prices and US crude oil inventories.
In addition, US treasury secretary Janet Yellen is scheduled to speak and the US Federal Reserve's Federal Open Market Committee (FOMC) meeting minutes are scheduled to be released.
Wednesday’s key themes and views
Sentiment may well struggle to be glass half-full in the short term due to the numerous headwinds. China’s services PMI data was extremely weak, which was on top of weak data last week and the Covid-19 related lockdowns will be a further drag. In addition to that, there are the global headwinds from higher US interest rates, inflation, the stronger dollar and high energy prices. The silver lining may be that the weakness in China, is likely to prompt a fiscal and monetary reaction that may well counter the current headwinds.
Gold prices were holding up well considering the strength of the dollar but, that said, gold is likely to remain supported by bond market weakness, inflation and uncertainty over how the war in Ukraine will unfold. We suspect the risk lies to the upside.