MORNING VIEW: Base metals prices on LME rebound after broad-based weakness on Monday

Base metals prices on the LME were up across the board this morning, Tuesday July 20, while the SHFE followed Monday's weakness, which was triggered by growing fears over the potential impact of the Delta variant of Covid-19 on the global economic recovery.

Gold, the yen and the dollar were stronger and the United States 10-year treasury yield weaker - all signs of a pick-up in haven demandThe spread of the Delta variant is a double-edged sword for metals as it could hit supply as well as demandBase metals
London Metal Exchange three-month base metals prices were buoyant on Tuesday morning - up by an average of 0.5%, led by a 0.9% rebound in copper to $9,276.50 per tonne, with lead the worst performer, up by just $3 per tonne to $2,290.50 per tonne. The rebound follows average losses of 2.1% on Monday.

Given that the latest wave of Covid-19 may well impact mining and shipping by as much as, if not more, than demand, we are not too surprised to see dip buying appear, but given the gains over the past 15-months, in reality, the sell-off could have further to run.

The most-active base metals contracts on the Shanghai Futures Exchange were mainly lower, with the exception of August zinc, which was up by 0.2%. Otherwise, the rest of the base metals were down by an average of 1.6%, led by a 2.7% fall in August nickel, while August copper was down by 1% at 68,290 yuan ($10,524) per tonne.

Precious metals
Spot precious metals were either up or in the case of silver ($25.16 per oz) unchanged, with gold up by 0.2% at $1,816.32 per oz, platinum ($1,080.50 per oz) up by 0.6% and palladium ($2,600.50 per oz) up by 0.5%.

Wider markets
The yield on US 10-year treasuries has slumped to 1.2%, down from 1.29% at a similar time on Monday and down from mid-July's peak of 1.42%. Given that inflation concerns in the US suggest yields should be rising, the weaker yield points to a pick-up in haven buying.

Asia-Pacific equities were weaker on Tuesday: the Nikkei (-0.96%), the Kospi (-0.35%), the Hang Seng (-1.13%), the ASX 200 (-0.46%) and the CSI 300 (-0.34%). The losses were not as big as those on Wall Street, where the Dow Jones Industrial Average closed down by 2.09% on Monday.

Currencies
The US Dollar Index extended gains on Monday to reach a multi-month high of 93.04 and it was recently at 92.94, compared with 92.76 at a similar time on Monday.

The Australian dollar (0.7320), sterling (1.3658) and the euro (1.1784) were all weaker this morning, while the Japanese yen (109.52) was firmer.

Key data
Key data already out on Tuesday showed Japan's national core consumer prices (CPI) climbed by 0.2% in June, after a 0.1% rise in May.

Later there is data on Germany's producer price index, the EU current account and US housing starts and building permits.

Tuesday's key themes and views
Monday's shake out in the metals has for the most part pulled prices back from high ground, but has not damaged the overall chart picture yet, especially given this morning's rebounds. Copper, which was looking the most vulnerable ahead of yesterday's sell-off, saw prices test the neckline of the potential head-and-shoulders pattern we have been watching, but the line held - so, for now, the jury is still out as to whether copper will break lower and probably drag the others down with it, or whether the dips will be seen as a good buying opportunity. With the Delta variant of the coronavirus likely to affect supply as much as it does demand, it would not be surprising if any weakness was short-lived.

Gold's show of weakness on Friday and yesterday was reversed by the close on Monday, suggesting a pick-up in haven buying. The stronger dollar is now a headwind, but the weaker treasury yields are a tailwind. Given increased market nervousness and the disappearance of Bitcoin from headline news, gold looks well placed to attract haven buying.

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