Broad markets were weaker this morning, Thursday May 21, this after strong gains in recent days on high hopes that the recovery will gain momentum while economies move out of lockdowns and with ultra-loose monetary policy adding fuel.
The danger is that some countries are relaxing lockdowns for economic reasons even though the Covid-19 virus is not under control, and that runs the risk of the virus scything through their economies in a second wave that could further hit global demand and supply and overwhelm health services.
* Asian-Pacific equity indices are showing weakness this morning, this despite Wednesday’s 1.52% gain in the Dow Jones Industrial Average.
* Pre-market major western equity indices are weaker too this morning, showing losses of between 0.65-0.95%.
Base metals
Three-month base metals prices on the London Metal Exchange were mixed this morning; aluminium and zinc were down by 0.1% and 0.9% respectively, while the rest were split between being little changed as in the case of copper, that was up by $2 per tonne at $5,447 per tonne compared with Wednesday’s close, and tin that was up by 0.5% at $15,540 per tonne.
The most-traded base metals contracts on the Shanghai Futures Exchange were also mixed with July aluminium and July zinc down by 0.3% and 0.7% respectively, while the rest were up by between 0.6% for July lead and 2.3% for July nickel. July copper was up by 1.3% at 44,260 yuan ($6,233) per tonne.
Precious metals
The precious metals were weaker this morning with spot gold prices off by 0.6% at $1,737.05 per oz, while the more industrial precious metals were down between 1.4% for platinum and 1.9% for silver. The gold /silver ratio is holding at around 1:101, having been over 1:120 in March.
Wider markets
The yield on benchmark US 10-year treasuries was recently quoted at 0.66%, this after being at 0.7% at a similar time on Tuesday - it is now back in the middle of the 0.61-0.71% range it has held in recent weeks.
Asian-Pacific equities were mainly weaker this morning: the Nikkei (-0.21%), China’s CSI 300 (-0.61%), the ASX 200 (-0.41%) and the Hang Seng (-0.58%), while the Kospi (+0.44%) was stronger.
Currencies
The US dollar index remains rangebound but at 99.28 it is nearer the lower levels of the 98.54-100.87 range that it has been in since early April.
The weaker dollar is underpinning some of the other major currencies we follow: mainly the euro (1.0975) and the Australian dollar (0.6568), while sterling (1.2202) and the yen (107.81) are weaker.
Key data
It is a busy day on the economic data front with the release of flash manufacturing and services purchasing managers index (PMI) data in Japan, Europe and the United States.
Data out so far has shown Japan’s manufacturing PMI dropped to 38.4 in May, from 41.9 in April, and France’s manufacturing PMI rose to 40.3 from 31.5 over the same comparison. The French services PMI rebounded to 29.4 in May from 10.2 in the prior month.
In addition, there is data on UK industrial order expectations and US releases that include the Philly Fed manufacturing index, initial jobless claims, leading indicators, existing home sales and natural gas storage.
US Federal Reserve speakers include Jerome Powell, Richard Clarida and John Williams.
Today’s key themes and views
Nickel and tin prices were leading the rebounds this morning, with prices putting in fresh highs since the March lows, which copper was doing on Wednesday. The rebounds in the base metals and broader markets suggest sentiment is stronger with traders looking forward to a pick-up in order flows while economies reopen. While these reopenings are happening the path of least resistance for the metals may well remain to the upside, but trading is expected to remain choppy in line with Covid-19 developments.
It is not surprising that gold prices are consolidating having recently set fresh highs, a look at the chart shows the trend is firmly to the upside as it has been since the second half of 2018, but all the uncertainty that Covid-19 has caused, combined with all the debt that it has caused are likely to keep investors interested in gold. But while gold is held by many as an insurance against hard times, some countries may have to sell some of their gold to finance their Covid-19 response and that could create some price weakness along the way.
William AdamsFastmarkets