BASE & PRECIOUS METALS - European Morning View - Metals pull back post FOMC, but expect good support

By: William Adams

London 13/12/2012 - Metals had a relatively quiet day on Wednesday which is unsurprising ahead of the FOMC statements and forecasts. At the close the base metals were up an average of 1.0 percent and the precious were up 0.2 percent. Aluminium and lead were up around 1.5 percent yesterday while copper was up 0.8 percent to $8,152.25. Gold closed unchanged at $1,708.75, having spiked up to $1,723.55 in post-FOMC statement trading after further quantitative easing (QE) was announced .

After the initial run up in prices after the FOMC statement, prices retreated on the combination of profit-taking, as the Fed’s news had widely been anticipated and on the Fed’s comments that their actions still would not be able to counteract the negative effects if policymakers fail to agree on the fiscal crisis.

This morning the base and precious metals are down an average of 0.7 percent with fairly even losses seen across the base of between 0.5 percent for tin ($22,300) and 0.8 percent for copper ($8,088), while gold is down 0.6 percent at $1,699 and silver is down 1.1 percent at $32.93, after a high of $33.815 yesterday. Volumes have, however, been strong on the LME with 10,020 lots traded, with 4,852 lots of copper, 2,552 lots of zinc and 1,414 lots of aluminium.

In Shanghai the metals are mixed, copper is off 0.4 percent at Rmb 57,570, zinc is down 0.4 percent at Rmb 15,355, lead is unchanged at Rmb 15,325 and aluminium is bucking the trend with a 0.3 percent gain to Rmb 15,320.

Spot copper in Changjiang is down 0.5 percent at Rmb 57,100-57,250 so remains in a contango with the futures, while the LME/Shanghai arb window is closed, with the differential little changed.

Equities – the initial reaction to the FOMC statement sent US equities flying higher, but the Dow went on to close down 3 points, earlier the Euro Stoxx 50 had closed up 0.2 percent. Overnight the Nikkei is up 1.7 percent helped by the weaker yen, while Hong Kong is down 0.2 percent, the MSCI Asia Apex is up 0.5 percent and China’s CSI 300 is down 1.1 percent.

Currencies – additional QE not surprisingly has pushed the dollar lower with the dollar index at 79.8, the low yesterday was 79.70, the euro is strong at 1.3089, as are Sterling at 1.6145, the aussie at 1.0555 and the yuan at 6.2367, while the yen has weakened further to 8.360. Given the more QE and a weaker dollar it is surprising gold has pulled back as much as it has.

The economic agenda is busy, the ECB monthly bulletin is out at 9am GMT, there is an EU economic summit in Spain, an Eurogroup meeting and on the data front we get updates on UK industrial order expectations, US retail sales and PPI, initial jobless claims and business inventories – see table on right for more details.

For now the uncertainty over the fiscal cliff negotiations is likely to keep the markets nervous and given the gains in recent weeks it is unsurprising that there has been some profit taking.

Our take-away from the FOMC statements is that the Fed is determined to get some momentum into the US recovery and that we think is bullish for the industrial metals and with the US doing more QE, we expect that to be bullish for bullion too as more QE equals further currency debasement.

As such, we feel these dips will be short-lived and attract further buying, although trading is likely to be pushed around by sound bites about the fiscal cliff.


Metals Overnight Performance
GMT7:19 AM+/-+/- %Lots
Steel 33600.0%Total lots
 Average (BM ex-Steel)-0.7%10020
 Average PM-0.7% 


Economic Agenda
EURECB Monthly Bulletin   
Day 1EUREU Economic Summit   
All DayEUREurogroup Meetings   
11:00amGBPCBI Industrial Order Expectations-17-21
1:30pmUSDCore Retail Sales m/m 0.0%0.0%
1:30pmUSDPPI m/m -0.5%-0.2%
1:30pmUSDRetail Sales m/m 0.5%-0.3%
1:30pmUSDUnemployment Claims 368K370K
1:30pmUSDCore PPI m/m 0.2%-0.2%
3:00pmUSDBusiness Inventories m/m 0.4%0.7%
3:30pmUSDNatural Gas Storage -4B-73B
6:00pmUSD30-y Bond Auction  2.82|2.8
11:50pmJPYTankan Manufacturing Index -9-3
11:50pmJPYTankan Non-Manufacturing Index48