BASE & PRECIOUS METALS European Morning View - Markets down on developments in Cyprus

By: William Adams

London - 18/03/2013 -

The metals stayed on the fence on Friday with base metals closing down 0.9 percent on average, having at one stage been up an average of 0.7 percent. Precious metals closed up by an average of 0.3 percent, with gold closing up 0.1 percent at $1,592 and platinum closing up 0.8 percent at $1,602 – gold’s high was $1,599.25 so once again prices got close to, but failed to overcome the key $1,600 level.  US data was mixed, but with an over extended equity market the worse than expected University of Michigan consumer sentiment and Empire State manufacturing data gave equities the excuse to pull back.

Over the weekend the proposed levy on Cypriot bank deposits as part of the measure to get the EU bailout has rattled the global markets as this could have far reaching implications across Europe.  The industrial metals have been hit hard on the news with the base metals off an average of 2.1 percent and platinum and palladium are down an average of 1.3 percent this morning. Aluminium has been the least affected, it is down 1.5 percent at $1,936, while copper is down  2.3 percent at $7,583.75.

Gold is acting as a safe-haven, it is up 0.5 percent at $1,600, but earlier on it was up 0.8 percent at $1,604.45. Silver has been up 1 percent at $29.03, last up 0.1 percent at $28.78.

In Shanghai the June base metals contracts are down an average of 2.1 percent with copper leading the decline with a 3 percent drop to Rmb 55,300, zinc is off 2.9 percent at Rmb 14,870, lead is off 1.6 percent at Rmb 14,620 and aluminium is off 1 percent at Rmb 14,685. Rebar is down 0.5 percent at Rmb 3,807 and gold is up 0.1 percent at Rmb 324.21/g.

Spot copper in Changjiang dropped 2.2 percent to Rmb 55,450-55,750, which has put it back in a backwardation with the futures, equivalent to some $72/tonne, while the LME/Shanghai arb window has narrowed to the extent that it may well have reopened for some types of arb traders with the ratio at 7.29.

Equities – on Friday the tone had turned bearish with the Euro Stoxx 50 off 0.7 percent and the Dow closed down 0.2 percent, but the mood has turned darker with the Nikkei off 2.7 percent, the Hang Seng is off 1.8 percent, the MSCI Asia Apex is down 1.9 percent and China’s CSI 300 is off 1.5 percent. The Nikkei has been hit by the double whammy of risk off trading and a stronger yen as it attracted safe-haven buying.

Currencies – the euro has dropped to 1.2900, the dollar has picked up safe-haven buying too with the dollar index at 82.88, sterling is weaker at 1.5080, while the aussie is holding up relatively well at 1.0360, as is the yuan at 6.2150.

For now we feel the Cypriot development is likely to lead to further risk-off trading in the short term, as mainland Europe adjusts to the change in EU tactics and that in turn could have even more widespread global implications should European investors and savers panic.

That said, with Cyprus such a small part of the Euro-zone, it may be that we are seeing this morning just a knee-jerk reaction and that the dip will be seen as a buying opportunity; but the markets are likely to be nervous until after the Cypriot parliament’s vote.

Metals Overnight Performance
GMT07:08+/-+/- %Lots
Steel 33000.0%Total lots
 Average (BM ex-Steel)-2.1%22436
 Average PM-0.5% 



Economic Agenda
UKRightmove HPI m/m1.7% 2.8%
 9:00amEU Italian Trade Balance 2.11B2.16B
10:00amEU Trade Balance 10.4B12.0B
2:00pmUS NAHB Housing Market Index 4846