Quick glance at gold

Commodities and metals gain on China stimulus
by Ipek Ozkardeskaya

Chinese markets opened the week higher as PBoC announced the extension of its pilot program on bank lending (launched last year), which should allow banks to pledge assets (incl. loans) to secure PBoC lending. This is expected to provide additional liquidity in the market by facilitating bank lending. The program will first be launched in Shandong and Guangdong provinces and should be expanded to Shanghai, Tianjin, Liaoning, Jiangsu, Hubei, Sichuan, Shaanxi, Beijing, and Chongqing. Shanghai’s Composite rallied 3.28% and Hang Seng gained 1.21%.

The lack of liquidity in China is an important drag to the recovery on both macro and micro levels of this colossal economy. The inflation less-than 2% signals that the gigantic domestic potential in China is far from being capitalised efficiently. There is certainly much more to do in order to boost the potential hidden behind 1.5 billion people and their massive $10 trillion economy.

The commodity markets made a positive start to the week; metals gained on expectation that additional Chinese liquidity will certainly give a bump to demand.

Copper advanced to $2.43/lb as, in addition to Chinese liquidity stimulus, Glencore announced to sell its copper mines in Australia and Chile.

Aluminium and nickel surged 3.42% and 1.58%. The significant price moves could however be illusive. The one-month realised volatility in the aluminium futures spiked to a seven year high.

Hence, the stabilisation in the commodity market is contingent on Chinese economic health.

Quick glance at gold

Gold surged to $1166.80 as news that South Africa’s No 2 gold miners’ union could go on a strike supported the already building appetite in gold. Positive momentum is favourable for further advance to $1170/77 (Aug high / 200-day MA). Weekly support remains at 1135/40, below there is possibility to retrace down to $1122/1112 (Fib 50% / 61.8%).

Central Bankers Eyed on Columbus Day
by Brenda Kelly

It’s Columbus Day in the US so we can expect to see fairly low trading volumes today. The macro calendar is also sparse but we do have a number of central bankers on the dance card this afternoon so expect most of the gyrations to be FX based. FOMC Lockhart is due to speak at 1pm at the Association for University Business and Economic Research's Fall Conference, in Orlando on the US economic outlook. Given the recent downward revisions by the IMF as well as a plethora of broker revisions, trader will be on tenterhooks looking for clues on the next tightening cycle. The probability of a move in December is now at 40% based on sovereign debt markets.

Martin Weale, a known BOE hawk is also due to provide his tuppence-worth when he speaks at the University of Groningen later in the afternoon. The pound has been steadily gaining against the dollar since falling to lows last seen in May in the early part of October. A lot of this upside has been down to a weaker dollar and the correlation to the euro. For the time being, the expectations for a near term rate rise has been pushed back, in part owing to the Fed dragging its feet but also owing to the risks presented by Brexit. The UK saw a nationwide loss of momentum in its economic growth in September. Growth, while remaining positive has continued to slow and September rounded off the weakest quarter of expansion in over two years.

As George Osborne himself tends to agree, ‘’I am very alert to the risks to the UK. We have a large budget deficit still, which needs clearing; our productivity performance is not nearly as strong as it needs to be; we don’t export enough; our record of building infrastructure is not good enough’’.

It’s a mixed picture this morning on European equities with the FTSE and CAC both lower in early trade while the Dax outperforms adding 0.75%. RWE and EON have fallen dramatically this year on fears that that provisions put aside will be insufficient for the full decommissioning of nuclear plants. These concerns were laid to rest this morning by the German Economy Ministry and shares in the companies have jumped higher by 12% and 10% respectively. A small rebound in VW and Deutsche Bank is also helping the broader index here- sustainability of these gains is naturally questionable given the on-going scandals related to the individual companies.

Currently, all UK sectors are in the red, with the oil and mining sector doing only slightly better than the banking and pharma stocks. Metals and oil have held a lot of their gains from last week. WTI has made yet another attempt on the $50/bbl mark while Brent crude, having gained some 25% since it posted a low of $42/bbl in late August looks set to make a move towards it’s 200 Day moving average. This would help underpin the price even further and perhaps allay both deflation and demand concerns to some extent. BP plc is down some 0.7% this morning shedding some additional upside having failed to break above the 395p mark last Friday. The stock had seen gains for 8 consecutive days in advance of Friday’s trading session but is coming very close to its 12 month average broker target price of 399p so some profit taking was inevitable.

Standard Chartered (-1.58%) has seen its rating cut to hold at Investec, price target remains unchanged at 820p. The recent surge in the share price (c.26%) has been mainly on the back of cost reduction plans and redundancies. Investec see revenue and earnings consensus as too high. Revenue (according to Investec) is seen falling to 10% in 2015, 4% in 2016.

Glencore (+0.86%) is in talks to sell copper mines in Chile and Australia. Trading was halted in HK for some time this morning as this news was released. The sale process is in response to a number of unsolicited offers and will add to the debt cutting programme announced last month. The mining giant also announced plans to reduce and / or curtail annualised zinc mine production by 500kt, affecting various operations in Australia, Kazakhstan and South America. The announced curtailment represents c.40% of total group production. The company does retain the ability to restart production as and when conditions improve.

Investors are less enthusiastic on AstraZeneca (- 0.9%) since hearing that the trials for two of its key cancer treatments has been halted- this is leading the entire sector lower this morning.