On average, base metals prices on the London Metal Exchange and Shanghai Futures Exchange were up by 0.2% and 0.4% respectively at 7.07am London time on Wednesday June 10.
Asian-Pacific equities were mixed but pre-market major western equity index futures were up this morning, showing some mixed currents ahead of the US Federal Open Market Committee (FOMC) economic projections and statement that are out this evening.
* The LME base metals have now rebounded by an average of 20.3% from the March lows and are down by an average of 11.5% from before the Covid-19 crisis.
* The S&P 500 is now showing year-to-date gains while the Nasdaq is setting record highs; financial markets seem to be chasing central bank liquidity and have decoupled from the real economy.
Base metals
Three-month base metals prices on the LME were mixed this morning; lead and zinc were down by 0.1% and 0.2% respectively, while the rest were up by an average of 0.4% - led by a 0.7% rise in copper to $5,805.50 per tonne. See table below for more details.
The most-traded base metals contracts on the SHFE were for the most part stronger, the exception was the July zinc contract that was down by 0.9%, while the rest were up by an average of 0.7%. July copper led on the upside with a 1.5% gain to 46,840 yuan ($6,615) per tonne.
Precious metals
The precious metals were up by an average of 0.6% this morning, with gold up by 0.2% - it was recently quoted at $1,718.46 per oz. This compares with $1,696.11 per oz at a similar time on Tuesday and supports our view that dips continue to be well supported.
Platinum ($838.50 per oz) was up by 0.4%, palladium ($1,953 per oz) was up by 0.6% and silver ($17.73 per oz) was up by 1.2%. The industrial metals are benefiting from a recovery in gold and continued strength in the base metals.
Wider markets
While equities and metals are upbeat, the yield on benchmark US 10-year treasuries has eased and was recently quoted at 0.81%, this after 0.85% and 0.9% at a similar times on Tuesday and Monday morning respectively. The lower yield suggests a pick-up in haven demand.
Asian-Pacific equities were mixed this morning: the ASX 200 (+0.06%), the Kospi (+0.31%), the Nikkei (+0.15%), the Hang Seng (-0.1%) and China’s CSI 300 (-0.13%).
Currencies
The US dollar index has resumed its weaker trend and was recently quoted at 96.19 - it has fallen in a fairly straight line since late-May.
The weaker dollar is boosting the other major currencies: the euro (1.1359), the Australian dollar (0.6991), sterling (1.2778) and the yen (107.34).
Key data
Wednesday’s economic agenda is busy - see table below. Consumer and producer price index data (CPI and PPI) in Japan and China has been weaker than expected and French industrial production fell by 20.1% month on month in April, compared with the 16.2% fall in March.
US data includes CPI and crude oil inventories and then this evening there is the barrage of FOMC data, forecasts and statements.
Today’s key themes and views
Copper and tin fell the most in the January to March sell-off and they have rebounded the most with tin now just down 5.4% from the January high, while copper is 8.5% off the high. Given French and German data showed industrial production was by down 20% and 18% month on month respectively in April, and that the hit to demand from Covid-19 is likely to have a long tail, especially if you look at how the auto industry data for May still shows massive pain, it does look as though the metals may be running ahead of the fundamentals. Can prices hold up until physical demand recovers?
While we expect the promised spending on infrastructure to boost demand for the metals, we expect it will take time to feed through to actual orders and will likely be somewhat countered by a global recession that means demand is likely to be down year on year.
Gold prices have once again found underlying support and are climbing again to challenge overhead supply. With US treasury yields weakening and the yen strengthening it may be that haven demand is on the rise and that is lifting gold prices too. Given the equity rebound seems out of sync with reality, we would not be surprised if there was some shift out of equities and into gold.
William AdamsFastmarkets