Copper moves higher in step with FTSE, but volatility remains

The bellwether copper market remained volatile at the start of the trading day Friday after making some solid gains overnight, in step with the FTSE100 opening up around 6% higher.

But it has been a rollercoaster few weeks since the true impact of the coronavirus outbreak has set in, with global equities seesawing. As of 0910 GMT, the FTSE had fallen back a little but was still up around 2.3% on Thursday's close.

The London Metal Exchange copper price, as quoted on electronic platform LMEselect, was $85/mt higher at $5,520/mt as of 0910 GMT.

Thursday saw a 20% retracement in the Dow Jones Industrial Average, from record highs, taking it into what is officially-termed bear territory. The index moved higher on news that the New York Federal Reserve would pump liquidity into the system, only to get sold off again afterwards.

Thursday saw the Dow open around 22,200 points, hit an intraday high of 22,650 and then close at 21,200, down around 10% on day. The Wednesday close was 23,550 points.

"Both base metals and precious metals saw price erosion yesterday as demand prospects continue to soften for industrial metals while margin calls may have induced selling in precious metals as well," said ING in its morning note.

Although there was some upside action Friday, most market players were dubious of a sustained rally.

"One thing that's sure is volatility is king, and will remain so. We are not out of the woods, not by a long shot. Of course there will be rebounds when things get sold as intensely as we have seen. But this is likely technical, rather than fundamental," said one trader.

Amid the frantic selling activity seen Thursday, gold was also caught up, sold down to around $1,550/oz at point. It has since regained some steam back up around $1,585/oz.

"We see significant upside for the gold price, despite it having rallied more than 8% this year on the weakening macro backdrop. Our gold valuation model suggests current spot prices are actually slightly undervalued. Moreover, while net long investor positioning is reaching record levels, technically it doesn't look overbought," ANZ said in its daily research.

The Australian bank upgraded its price forecast, and now expects gold to hit $1,900/oz in Q2, before easing back to $1,700/oz by year-end.

"The fact people are bullish gold gives you a sense of what's to come, it's a zero yield asset class. The reason you buy is to try protect your downside," said a broker.

JP Morgan was cautious at best on the global economic outlook.

"COVID-19 is expected to roll through the global economy over February, March, and April, generating GDP contractions in most countries for at least one of the two quarters it straddles," Bruce Kasman, analyst at the investment bank's economic and policy division, said.

"Financial conditions are tightening sharply as perceptions of credit quality across a wide range of asset classes deteriorates and market liquidity dries up. Credit spreads and market measures of corporate and sovereign default risk have widened markedly," Kasman added.