BASE & PRECIOUS METALS - European Morning View - Metals consolidate, but was Monday's weakness a warning

By: William Adams

London 05/02/2013 - Base metals put in a day of consolidation yesterday closing up by an average of just 0.2 percent, while precious metals did better, they closed up by an average of 0.7 percent, with the PGMs rising over one percent. Copper and gold were both unchanged at $8,288 and $1,674.80. Generally, apart from the PGMs it was a low-key day, although at the day’s highs gold had reached $1,685.50.

This morning the metals are down an average of 0.2 percent, silver leads on the downside with a 0.5 percent drop to $31.70, palladium is up 0.1 percent at $765.10, while the rest are either unchanged, or down between 0.1 and 0.3 percent with copper at $8,285.25. Volumes on the LME remain light with 4,546 lots traded as of 07:16 GMT.

In Shanghai the April base metals are down an average of 0.3 percent, zinc is down 0.5 percent at Rmb 15,850, lead is off 0.3 percent at Rmb 15,400, aluminium is down 0.2 percent at Rmb 15,130 and copper is unchanged at Rmb 59,600. Rebar is off 1.6 percent at Rmb 4,012, while gold is down 0.1 percent at Rmb 338.96.

Spot copper in Changjiang firmed 0.2 percent to Rmb 58,900-59,100, with the contango to the April price running at an equivalent of some $80/tonne, while the LME/Shanghai copper arb ratio is last at around 7.20.

Equities recovered well yesterday from Monday’s sell-off with the Euro Stoxx and Dow closing up 1 percent and 0.7 percent and the mood in Asia has been buoyant too, especially in Japan where the Nikkei is up a whopping 3.8 percent as Bank of Japan governor Shirakawa will step down three weeks earlier than originally planned, which suggests prime minister Abe’s quantitative easing policies will kick-off sooner rather than later. The Hang Seng is up 0.7 percent, the MSCI Asia Apex is up 0.4 percent and China’s CSI 300 is up 0.2 percent.

Currencies – the dollar is stronger with the index rising to 79.73, the euro is back peddling again, last at 1.3535, the pound is dropping it is last at 1.5636, as are the yen at 93.75 and the aussie at 1.0334, while the yuan is firmer at 6.2322.

The economic agenda is light today with UK house prices, German factory orders and US crude oil inventories – see table attached for more details.

The rebound in the equity markets yesterday suggested Monday’s sell-off was a bout of profit-taking, but it should be taken as a warning that Europe could still cause a problem for the markets. Indeed we need to be watchful that yesterday’s rebound has legs and was not just over complacent bargain hunting. Certainly political change in Europe could destabilise the policies that are in place to tackle the debt crisis.

As such, we feel the base metals may struggle to push on with their advances as these high prices are likely to attract more producer/forward selling and we would therefore expect another period of range trading to get underway. For the precious metals we feel the PGMs are likely to work their way high on supply concerns, but they too are unlikely to rise in a straight line so may need to consolidate before too long, while we also remain bullish for gold as creditors of paper currencies look to diversify their exposure.

Metals Overnight Performance
GMT7:16 AM+/-+/- %Lots
Steel 33000.0%Total lots
 Average (BM ex-Steel)-0.2%4546
 Average PM-0.2% 



Economic Agenda
GBPBRC Shop Price Index y/y0.6% 1.5%
 8:00amGBPHalifax HPI m/m -0.2%1.3%
11:00amEURGerman Factory Orders m/m 0.8%-1.8%
3:30pmUSDCrude Oil Inventories 2.7M5.9M
11:50pmJPYCore Machinery Orders m/m -0.7%3.9%




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