BASE & PRECIOUS METALS - European Morning View - Metals tread water as consolidation sets in

By: William Adams

London 08/02/2013 -The metals put in another down day yesterday, with the industrial precious metals leading the declines with average losses of 1.4 percent, with base metals off an average of 0.4 percent and gold down 0.4 percent. Overall we feel the metals are undergoing a correction, which considering prices had run up to the top of their 12 to 15-month ranges in many cases is not so surprising, especially given some pick-up in concern over Europe. In addition, the run up in Asian equities since early December also looks overdone.

Overnight Chinese CPI and PPI data came in as expected with CPI at 2 percent and PPI at minus 1.6 percent, while the trade data showed copper imports rising 2.9 percent compared with December.

Trading overnight has been relatively quiet with the base metals showing average gains of 0.2 percent, while the precious metals are down by 0.2 percent. Zinc is up the most with a 0.5 percent gain to $2,167.50, whole copper is up 0.3 percent at $8,235. The PGMs are off an average of 0.4 percent while gold is unchanged at $1,671.40. Volumes on the LME remain light at 4,581 lots, but are likely to shrink further next with China on holiday.

In Shanghai the April base metals contracts are up 0.3 percent with lead leading the way forward with a 0.6 percent gain to Rmb 15,390, aluminium is up 0.3 percent at Rmb 15,140, copper is up 0.2 percent at Rmb 59,480 and zinc is up 0.1 percent at Rmb 15,780. Rebar is up 0.6 percent at Rmb 4,036, while gold is unchanged at Rmb 340.31.

Spot copper in Changjiang jumped 0.6 percent to Rmb 58,950-59,150, which has narrowed the contango with the futures to around an equivalent to $50/tonne, while the LME/Shanghai arb window remains closed with the ratio around 7.23.

Equities – yesterday was a down day for equities with the Euro Stoxx 50 off 0.7 percent and the Dow down 0.3 percent, but it looks as though there has been some pre-holiday short-covering in Asia with the Hang Seng up 0.2 percent, China’s CSI 300 and the MSCI Asia Apex are up 0.4 percent, while the Nikkei is off 1.8 percent – no doubt on the back of a correction in the yen.

Currencies – yesterday was turn-around day for the currencies with the euro reversing, last at 1.3390, the yen strengthening to 92.75, cable is firmer at 1.5732, after a low of 1.5627, the aussie is weaker at 1.0306, although earlier today it went as low at 1.0253, while the Chinese yuan is little changed at 6.2335.

The economic calendar focuses on trade balances, China’s trade surplus for January is difficult compare with last year as the Chinese New Year was in January last year, but will be in February this year. Japan’s economic watchers sentiment climbed to 49.5 from 45.8, the German trade surplus climbed, France’s trade deficit shrank and later we get Italian industrial production, the US trade balance and wholesale inventories – see table attached for more details.

On balance we expect the industrial metals to consolidate further at lower numbers after the strength they have seen in recent weeks. Even the PGMs, which arguably have the strongest reasons to be rallying, are consolidating, so if they are then we would expect the base metals to pull back too. Bullion is stuck sideways, the upside forays keep running into resistance, but we expect buying interest will remain firm as dollar, euro and yen creditors look to diversify exposure away from fiat currencies.

Metals Ovenight Performance
GMT7:13 AM+/-+/- %Lots
Steel 31400.0%Total lots
 Average (BM ex-Steel)0.2%4581
 Average PM-0.2% 



Economic Agenda
US FOMC Member Evans Speaks   
2:07amChinaTrade Balance29.2B24.3B31.6B
5:00amJapanEconomy Watchers Sentiment49.548.245.8
5:30amChinaCPI y/y2.0%2.1%2.5%
5:30amChinaPPI y/y-1.6%-1.6%-1.9%
7:00amEU German Trade Balance16.8B13.7B14.6B
 7:45amEU French Gov Budget Balance-87.2B -103.4B
9:00amEU Italian Industrial Production m/m0.2%-1.0%
Day 2EU EU Economic Summit   
1:30pmUS Trade Balance -45.7B-48.7B
3:00pmUS Wholesale Inventories m/m 0.5%0.6%