London 06/02/2013 -The markets were quite choppy yesterday, the base metals headed lower and saw average losses of 1.1 percent, while the precious metals faired better with an average gain of 0.3 percent, although at the day’s highs prices were up an average of 0.9 percent with strong gains seen in platinum, which reached a high of $1,741 and palladium reached a high of $773. As we said in yesterday’s Morning Report, we needed to be careful that Tuesday rebound had legs and judging by the volatility in equities yesterday, we are not sure it has as the euro Stoxx 50 closed off 1.3 percent, although the Dow recovered off earlier lows, closing up less than 0.1 percent.
This morning the metals are opening up in Europe in a mixed fashion with aluminium, zinc, lead and tin down between 0.3 and 0.6 percent, while nickel is down 0.1 percent and copper is up 0.1 percent. Precious metals have also been quiet with gold and platinum unchanged, silver off 0.2 percent and palladium up 0.1 percent – see table attached for more details.
In Shanghai the April base metals contracts are down an average of 0.5 percent, zinc is off 0.9 percent at Rmb 15,475, lead is down 0.6 percent at Rmb 15,345, while aluminium and copper are off 0.4 percent at Rmb 15,090 and Rmb 59,460. Rebar is up 0.1 percent at Rmb 4,022 while gold is up 0.4 percent at Rmb 340.31/g
Spot Changjiang copper is down 0.5 percent at Rmb 58,550-58,800, which has expanded the contango with the futures to an equivalent of some $105/tonne and the LME/Shanghai copper arb window remains shut with the ratio at 7.22.
Equities – following on from the weaker tone yesterday the Nikkei is off 0.9 percent, the Hang Seng is down 0.4 percent, the MSCI Asia Apex is off 0.3 percent and China’s CSI 300 is down 0.6 percent. Given the rapid gains since early December in Asian markets it now looks as though there is room for profit-taking.
Currencies have stabilised, the recent dynamics have halted with the dollar index treading water around the 79.75 area, the euro is at 1.3522, sterling is at 1.5660, the aussie is firmer at 1.0330, the yen is at 93.57, after a low of 93.94 and the yuan is last at 6.2340.
The economic calendar is busy – Japan’s leading indicators climbed to 93.4% from 92.1%, later we get a mass of data out across Europe including UK manufacturing and industrial production, German industrial production, the BoE and ECB are announcing interest rates and are holding conferences, while in the US we get initial jobless claims, non-far productivity and consumer credit – see table attached for more details.
Our view for the base metals has switched to one of consolidation/correction, prices have run up into high ground approaching either the January, December, or the September/October highs and with concerns over Europe starting to pick-up again, the recent bullishness is now likely to wane and we would expect a pick-up in producer pricing.
Given the gains since late October and again since mid-January there may well be room for some meaningful pull backs. We remain more bullish for gold as that has been a laggard of late and with more talk of political involvement in setting currencies that might well encourage greater diversification from currencies into the likes of gold. Although we are bullish for the PGMs on supply concerns over the medium term, we feel they may need to consolidate for a while in the short term.
By: William Adams