Despite the world of trade and economic weakness still very much in focus, markets have generally managed to do some consolidating, although with the gold price holding above $1,320 per oz, haven assets remain in demand. We still see the global economy as wounded and it will need a US-China trade deal to see it recover.
Base metals
Three-month base metals prices on the London Metal Exchange were for the most part firmer on Friday June 7, holding on to the gains they recorded on Thursday. Copper, aluminium, zinc and nickel were up between 0.3% and 0.4%, while lead was up by 0.1% and tin was untraded.
Thursday’s gains, that averaged 1%, seemed to be driven by a combination of lingering hopes that US-Mexico tariffs would be avoided and while shorts covered into the recent price weakness.
Trading has been quiet this morning with Chinese markets closed in observance of the Dragon Boat Festival; just 1,644 lots had traded on LME Select as at 6.48am London time, compared with an average of 5,825 lots at a similar time over the first four days of the week.
Precious metals
The gold price is consolidating in high ground and was recently quoted at $1,331.80 per oz, down by 0.2% from Thursday’s close of $1,335.05 per oz and down from Wednesday’s high of $1,344.10 per oz. Silver has followed gold’s lead, but platinum has failed to hold on to most of its gains and palladium has ignored the run-up in gold.
Wider markets
Like the base metals, oil prices have drifted higher with the spot Brent crude oil price recently quoted at $62.48 per barrel, up from Wednesday’s low of $59.42 per barrel.
While markets appear to be consolidating, the yield on benchmark US 10-year Treasuries has drifted higher again and was recently quoted at 2.1233%, compared with 2.1166% at a similar time on Thursday. The yields on the US two-year and five-year treasuries remain in contango – they were recently quoted at 1.8757% and 1.88844% respectively.
The German 10-year bund yield, however, remains on a back footing, falling further into negative territory and was recently quoted at -0.2350%, compared with -0.2300% at a similar time on Thursday.
Those Asian equity markets that are open were also firmer this morning: Nikkei (+0.53%), Hang Seng (closed), CSI 300 (closed), Kospi (+0.16%) and the ASX 200 (+0.95%).
This follows a mixed performance in western markets on Thursday; in the United States, the Dow Jones Industrial Average closed up by 0.71% at 25,720.66, while in Europe, the Euro Stoxx 50 closed down by 0.05% at 3,338.41.
Currencies
The dollar index rebounded on Wednesday but dropped on Thursday and was recently quoted at 97.08 this morning. The European Central Bank (ECB) stance of not being as dovish on Thursday as the market expected strengthened the euro (1.1261), which weighed on the dollar.
Sterling is firm at 1.2700, the Australian dollar (0.6971) is consolidating and the Japanese yen (108.48) is slightly weaker as other markets are firmer, suggesting haven demand may be slowing for now.
Key data
Economic data on already out on Friday shows further weakness with Japan’s leading indicators at 95.5%, compared with 95.9% previously and with German industrial production falling by 1.9%, after previously rising by 0.65%.
Key data still to come includes French industrial production, Italian retail sales and the US employment report.
Today’s key themes and views
The trends in the base metals seem to be driven by both the gloom surrounding the trade disputes and the deteriorating economic data, which in turn are interlinked. While the metals’ fundamentals may be tightening, any tightness will be alleviated if the demand side fundamentals weaken.
Unless a trade deal comes in to brighten up the outlook, it is hard to see why consumers would be in a hurry to restock. At the same time, the fundamentals are likely to re-exert themselves at some stage but until they do the path of least resistance is likely to remain sideways-to-lower.
The gold price is buoyant, it has stopped rising for now as consolidation across markets seems to be the order of the day. Given the risks of further trade war escalation, gold may well remain in demand as a haven for a while.
William AdamsFastmarkets