LME MORNING - Base metals subdued, traders cautious ahead of central bank meetings in US and Europe

By: Eddie van der Walt

London 31/07/2012 - Base metals traded sideways in narrow ranges in Tuesday morning LME trading, having drifting lower at first ahead of key meetings of central banks on both sides of the Atlantic.

"The metals have seen a mixed and largely directionless start so far with both the base and precious complexes up around 0.1 percent," FastMarkets analyst James Moore said.

The main event this week is the two-day Federal Open Market Committee (FOMC) meeting, which starts in Washington later today, with some hoping that the committee will act to reignite the flickering economy.

This will be followed by meetings of the European Central Bank and Bank of England on what Credit Suisse has called 'Super Thursday'.

"Markets have high hopes for policy actions on 'super Thursday' when the Fed and the ECB are expected to make important policy statements following their respective meetings," the broker said. "ECB president Mario Draghi’s comment last week has stoked optimism that policymakers would announce measures to spur growth."

Last week, Draghi told a meeting in London that the ECB stood ready to do whatever it takes to save the euro, a sign interpreted by many that the bank is preparing to re-enter the bond markets.

"[But] the ECB is unlikely to introduce further unconventional measures or to cut interest rates again on Thursday, largely because another rate cut would again limit the council’s ability to ease monetary policy later in the year if economic growth in the bloc has not started to stabilise by the fourth quarter," FastMarkets analyst Jono Remington-Hobbs said.

The central may also "demand time to see how the data changes after this month's rate cut to a record low of 0.75 percent", he added.

He also cast doubt over the likelihood of further immediate quantitative easing from the Fed

"Having extended 'Operation Twist' last month, committee members may be reticent about using more tools in the policy box too quickly, especially after data has largely been mixed in the past month. With this in mind, the September meeting seems a more viable target for the Fed to extend its balance sheet once again," he said.


Aluminium, which climbed $4.75 to $1,904.75 per tonne, saw a large increase in stocks - these rose a net 46,575 tonnes to 4,886,725 tonnes, the largest increase since February 14, with Vlissingen adding 52,375 tonnes. Around 2,800 lots have traded on electronic platform Select do far this morning.

Copper last traded at $7,597, an increase of $52, with warehouse stocks dipping by 250 tonnes to 2489,825 tonnes. Around 6,000 lots have traded on Select so far.

"The combination of month-end related book squaring and caution ahead of this week’s data releases and central bank meetings will probably keep the metals within recent ranges, with the outcome of the ECB and Fed policy meetings and accompanying statements to drive short-to-medium-term direction," FastMarkets' Moore said.

Nickel lost $91 to $16,159 but lead was unchanged at $1,951. But zinc and tin edged higher, with zinc gaining $3 to $1,865.50, and tin gaining $30 to $18,300.

"The situation on the global tin market is tenser than the price would currently suggest," Commerzbank said in a note. "The number of cancelled warrants recently climbed to 4,400 tonnes, the highest figure since early June."

In data released so far today, the Japanese manufacturing PMI came in at 47.9, down from the previous figure of 49.9, while French consumer spending dipped to 0.1 percent from 0.5 percent. German retail sales made a modest recovery to -0.1 percent last time but the reading was below the forecast of 0.6 percent and remains in negative territory.

In a rare hopeful glimmer, Italian bond yields dipped on Monday - with the cost of 10-year lending falling to 5.96 percent from 6.19 percent and that of five-year lending to 5.29 percent from 5.84 percent last month.

(Editing by Mark Shaw)