LME MORNING - Base metals track currencies higher, ECB comments lift market

By: Kathleen Retourne

London 27/07/2012 - Base metals came off their session highs on Friday morning but all remained in positive territory, buoyed by comments from the ECB yesterday that have lifted the euro

European Central Bank president Mario Draghi said on Thursday that the bank would not let the euro fail.

"Within our mandate, the ECB is ready to do whatever it takes to preserve the euro," he said in a speech. "And believe me, it will be enough."

The single currency is currently at 1.2262 against the dollar, up from a 25-month low of 1.2040 from earlier this week but off its earlier high of 1.2315.

“The expectation of action by central banks has given the euro a further boost keeping prices buoyant. This may well breathe new life into markets, but the reality and gravity of the situation must surely keep optimism in check,” a trader said.

Spain, which has become an increasing headache for the eurozone, has also some reasons for cheer. Although still at high levels, the Spanish unemployment rate for May of 24.6 percent was slightly better than expected 24.7 percent.

Spanish 10-year bond yields, which had hit euro-era highs above 7.5 percent in recent sessions - a level described by many as unsustainable - recovered to 6.71 percent this morning, while the Italian equivalent dropped back below six percent.

Today marks the end of the week, which could lead to some short covering in later sessions. Datawise, the US will release advance GDP data and the advance GDP price index, alongside revised UoM consumer sentiment and inflation expectations.  These data releases could also influence price direction.

There is growing optimism that the US Federal Reserve will signal its intention to provide additional stimulus measures at next week's FOMC meeting.

"People are more confident that we will see finally see decisive action being taken very soon," Jonathan Barratt, CEO of Sydney-based Barratt's Bulletin, said. "Everyone is running out of time and the market has been frustrated for quite a while, but after Draghi's comments, metals might finally be able to break out of their current ranges starting from today."

Barratt also expects positive news from the Fed's FOMC meeting on Tuesday and Wednesday next week. If the Fed were to announce additional stimulus measures such as a third round of quantitative easing, the weaker US dollar could catalyse stronger US growth and lift markets around the world, he said.


METALS TICK HIGHER

Copper last changed hands at $7,525.25 per tonne, up $55.25 on the previous day’s close - it had hit $7,551 earlier.

Inventories rose a net 400 tonnes to 250,300 tonnes but there were large fluctuations across the network - inventories rose 800 tonnes in Gwangyang, 400 tonnes in New Orleans and 375 tonnes Johor and fell 1,925 tonnes in Busan and 125 tonnes in both Hull and Chicago.

Aluminium at $1,888.50 was up $10.50 but was still struggling to break above $1,900 after stocks rose 5,575 tonnes to 4,840,625 tonnes.

The biggest inflow was at Vlissingen at 9,500 tonnes, while Detroit shed 3,000 tonnes. Rotterdam inventories continue to rise, up a further 2,400 tonnes to 485,300 tonnes and overtaking Singapore to become the third-largest holder of material.

Lead rose $18 to $1,903 after stocks fell 1,775 tonnes to 328,975 tonnes. Johor saw a net outflow of 1,150 tonnes and Bilbao 425 tonnes. Total inventories are now at their lowest since September 16.

In other metals, nickel was $85 higher at $15,975 but down from its intraday peak of $16,100. Stocks were little changed at 112,968 tonnes, up 474 tonnes due to arrivals in Rotterdam.

Zinc gained $15.25 to $1,831.25 - inventories were down 1,275 tonnes to 1,005,200 tonnes and cancelled warrants at 156,775 fell 2,475 tonnes. Tin rose $275 to $18,025, with stocks up 25 tonnes to 11,770 tonnes.  

Steel remained soft at $380/405, while in the minor metals cobalt was indicated at $27,600/30,500 and molybdenum at $25,000/26,000.


(Additional reporting by Eddie van der Walt, editing by Mark Shaw)

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