Base metals prices were little changed but mixed on the London Metal Exchange, while those on the Shanghai Futures Exchange were for the most part weaker on the morning of Friday February 25, perhaps suggesting that China is expecting to see more metal from Russia.
* US equities recovered early losses on Thursday...
* ...this has provided some stability to markets on Friday morning
* Spot Brent crude oil and spot gold prices down from Thursday’s spike high, but still elevated
Base metals
Three-month base metals prices on the LME were mixed this morning, with aluminium ($3,358 per tonne), zinc ($3,608.50 per tonne) and tin ($44,960 per tonne) all down by an average of 0.3%, while copper ($9,873.50 per tonne) and nickel ($24,320 per tonne) were both up by 0.2% and lead ($2,366.50 per tonne) the top performer with a rise of 1.4%.
The most-traded contracts on the SHFE were mainly weaker, with the exception of lead where the April contract was up by 0.6%. The rest were down by an average of 0.7%, led by a 1.5% fall in April nickel and a 1.2% fall in April aluminium, while April copper was down by 0.3% at 70,660 yuan ($11,190) per tonne).
With Europe most worried about availability of aluminium and nickel, among the base metals, due to the stand-off with Russia, it is interesting that these two metals are the ones that are off the most today in Shanghai. Does this suggest that if exports to the West are disrupted, more exports from Russia may head towards China?
Precious metals
The spot precious metals prices all put in an upward spike on Thursday, but settled back within Wednesday’s trading range by the close, but they are up slightly again on Friday. Overall, we would expect the precious metals to work their way higher on the back of the uncertainty caused by the war in Europe and the inflationary pressures that could emerge from higher commodity prices.
Wider markets
Haven demand pulled United States 10-year treasuries down on Thursday, they have since recovered to 0.95%, compared with 1.9% at a similar time on Thursday.
Asia-Pacific equities were mainly firmer on Friday: the Nikkei (+1.95%), China’s CSI 300 (+0.97%), the Kospi (+1.06%) and the ASX 200 (+0.1%), but the Hang Seng (-0.73%) bucked the trend.
Currencies
The US Dollar Index jumped higher on Thursday morning to set a high at 97.74, it was recently at 96.90, up from 96.60 at a similar time on Thursday. The previous, recent, high was at 97.44, seen on January 28.
The other major currencies were recovering from Thursday’s moves: the euro (at 1.1209), sterling (1.3417) and the Australian dollar (0.7201) were all firmer, while the Japanese yen was weaker at 115.28.
Key data
Friday’s economic agenda is busy, data already out on Friday, saw the UK GfK consumer confidence index in at -26 for February, moving from -19 in January; Germany's final gross domestic product (GDP) fell 0.3%, earlier readings had estimated a 0.7% fall, while German import prices climbed 4.3% in January, after a 0.1% rise in December; French consumer spending fell 1.5% in January, after a 0.2% rise in December, with consumer prices rising 0.7% in January, month on month, after a 0.3% rise in December and French preliminary GDP rising 0.7%, unchanged from the flash reading.
Later there is data on EU M3 money supply and private loans, with US data on durable goods orders, personal consumption expenditure (PCE), the consumer price index (CPI), personal income and spending, revised University of Michigan consumer sentiment, along with inflation expectations and pending home sales.
In addition, European Central Bank president Christine Lagarde is scheduled to speak and there are Eurogroup meetings.
Friday’s key themes and views
Broad markets seem to be taking a breather this morning after yesterday’s reaction to Russia’s invasion of Ukraine. It seems the first round of sanctions was deemed not as damaging to those countries implementing them as the market initially feared. But with Russia unlikely to back down, this crisis is likely to escalate further and therefore there may be more risk-off to follow. The impact for the metals is likely to mixed, however. Prices would normally initially react negatively to a broad-based downward correction, but as the situation in Europe threatens supplies of commodities and may prompt those relying on Russian exports to cover their potential loss of supplies in the spot market, there is likely to be upward pressures on prices too. As such, we expect more volatility, albeit with an overall upward bias.
This is almost a win-win situation for gold, however, given the increase in haven demand, raised inflationary pressures and the fact that developments may well mean central banks cannot be as hawkish as they want to be. Palladium is the most at risk given that around 38% of global mine output comes from Russia, but if palladium stops flowing from Russia to the West, it may end up being rerouted via China.
The pullback in gold from yesterday’s initial bullish reaction is not surprising, gold often follows a similar pattern when shocks happen - the initial reaction is in line with developments, the secondary reaction is that investors dash for cash and take profits to pay for margin calls in less liquid assets and the third reaction sees some of the money that becomes available after being liquidated from other assets, parked in havens until the dust settles.