Prices & Review

Overview (June 2020)

Despite the continued spread of the Covid-19 pan-demic that has accelerated in many parts of the world in June as economies have reduced lockdown re-strictions, markets have been upbeat on the prospects of economic recovery and the rebound in demand that it will bring. But, the price rebounds have been so strong that you could be forgiven for thinking that the end of the crisis is in sight, which it is not. This is es-pecially so for equity indices, with the Nasdaq even setting fresh record highs and the Dow Jones Indus-trial Average rebounding to within 7 percent of its pre-Covid-19 highs, having been down 38 percent at one stage. The base metals have also rebounded strongly and are on average 10.7 percent below their pre-crisis levels, having been down by an average of 26 percent at the lows. While the extent of the base metals’ re-bounds looks excessive given the state of the global economy, they are potentially more justified as the rapid spread of the virus through developing countries is starting to directly affect metal production more, especially in South America, where some work re-strictions and preventative measures are likely to re-duce or temporary halt output. Codelco has closed some of its refining operations at Chuquicamata. With 9.3 million confirmed cases of the virus and 470,000 known deaths globally and with a continued risk of the first waves spreading further and second waves developing, the virus is now out of control and is like-ly to prevent any return to ‘normal’ until a vaccine, or cure has been found. The International Monetary Fund is now projecting a deeper recession in 2020 and a slower recovery in 2021. It now expects a 4.9 percent fall in global output, its forecast in April was for a 3 percent decline, while back in January, before Covid-19 struck, it expected growth of 3.3 percent. Gold pric-es have been climbing steadily and are at multi-year highs, which suggests that even though money is mov-ing into equities and other asset classes, some investors are also hedging their bets by increasing their expo-sure to gold. Weaker US ten-year treasury yields that were at 0.67 percent in late-June, having been around 0.8 percent in early-June, also suggests risk appetite is waning again. The EU’s 750 billion euro rescue pack-age faces hurdles as 27 EU leaders need to agree on the details, but there is division amongst members. As a result, the euro has pulled back to 1.1200 from highs in early June at around 1.1400. All in all, there is still so much uncertainty - we need to hope that the huge sums of government-borrowed money that have been pumped into businesses and households, keep the economic wheels spinning for long enough to find a solution to Covid-19, but given the unprecedented amount of state support, you have to wonder at what stage the money printing presses stop and what then follows?