MORNING VIEW: Metals prices generally weaker as Covid-19 takes center stage again

Base metals prices on the Shanghai Futures Exchange were down across the board this morning, Tuesday December 22, as were most of the metals on the London Metal Exchange, with the exception of tin.

Despite the United States Congress finally passing another Covid-19 recovery package, the metals were under pressure after the emergence of a new variant of the virus takes hold, which could increase the risk of more stringent lockdowns that in turn could hit demand again.

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Base metals
Three-month base metals prices on the LME were for the most part weaker, the exception was tin that was up by 0.1% at $19,985 per tonne, while the rest of the complex was down by an average of 1.4% - led by a 1.9% fall in nickel ($17,020 per tonne). Copper was down the least with a 0.9% fall to $7,800.50 per tonne.

The most-traded base metals contracts on the SHFE were weaker across the board with prices down by an average of 2.1% - led by a 3.8% fall in February lead. The February copper contract was down by 1.5% at 58,390 yuan ($8,914) per tonne.

Precious metals
Spot gold prices were down by 0.6% at $1,867.10 per oz, this after setting a high at $1,906.55 per oz on Monday. Silver ($25.77 per oz) and platinum ($991 per oz) were down by 1.8% and 1.9% respectively, while palladium ($2,315.50 per oz) was down by 0.1%.

Wider markets
The yield on US 10-year treasuries was recently quoted at 0.92% and it has not been moving much in recent days.

Asia Pacific equities were weaker this morning: the ASX 200 (-1.05%), the Nikkei (-1.04%), the Hang Seng (-0.81%), the CSI (-1.63%) and the Kospi (-1.62%).

Currencies
The US dollar index is consolidating after Monday's knee-jerk move to the upside after safe-haven buying emerged. It was recently quoted at 90.22, this after Monday's high of 91.01 and last week's low at 89.73.

Most of the other major currencies are holding up in high ground this morning, having spiked lower on Monday: the euro (1.2226), the Australian dollar (0.7552), the yen (103.43) and sterling (1.3424).

Key data
Data already out on Tuesday showed Germany's Gfk consumer climate index fall to -7.3 in November from -6.8 previously, and in the United Kingdom, a final gross domestic product (GDP) reading showed 16% growth in the third quarter, above an earlier reading of 15.5%, this after a 19.8% drop in the second quarter. UK public sector borrowing in November surged to ?30.8 billion ($41.1 billion), from ?20.9 billion, revised business investment climbed by 9.4% in the third quarter and the current account in the third quarter showed a ?15.7 billion deficit.

Data out later includes US data on GDP, existing home sales and the Richmond manufacturing index and there is a reading on Chinese leading indicators.

Today's key themes and views
Once again the base metals are showing some weakness and we wait to see whether the weakness lasts, because previous bouts of weakness have tended to be short-lived.

But perhaps given how strong prices have become, the fact that the holiday period and year-end are approaching and there is uncertainty over how this new variant of Covid-19 will be handled by governments, this might mean there is a new risk that demand could be hit if more stringent lockdowns that affect manufacturing are imposed again. Overall, we would not be surprised to see prices fall further now.

Given the increased uncertainty and potential for broader markets to react negatively to the latest Covid-19 news, we would not be surprised to see some rotation into gold, although initially gold could also be carried lower if a broad-based 'dash-for-cash' unfolds. If that happens, then we would expect a bullish secondary reaction to follow.

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