LME MORNING - Metals recover as euro strengthens, US jobs report to set tone later

London, 02 July 2010 - Base metals advanced broadly during LME trading on Friday morning, underpinned by the strength of the euro, steadier equities - notably resource shares - and declines in warehouse inventories.

Metals had been pummelled heavily in the previous session but reversed direction and sped higher, following in the slipstream of a resurgent euro, which was trading around multi-week highs against the US dollar. It stood around $1.2525, while in other markets shares in Europe were up 0.4 percent.

"Revisions to the Australian mining tax have lifted sentiment across the metal markets but the news is not actually bullish for the metals so we would be wary of reading too much into today’s firmer prices," William Adams of FastMarkets said.

The Australian Super Resources Tax was scrapped and replaced with the Minerals Resource Rent Tax. This sees the headline tax rate reduced to 30 percent from 40 percent and will be applied from July 2012.

But the mood was fickle, as it has been all week, and the complex will be susceptible to further wide gyrations later in the session - today's key data event is the US June jobs report early this afternoon.

Financial markets have been on tenterhooks this week and flighty ahead of this data as worries circulate over the global economic outlook. The employment report, due at 1330 BST, is expected to show a decline of 106,000 in non-farm payrolls, the first fall this year.

Prices will be vulnerable to the knock-on impact from other financial markets as well as end-week considerations ahead of the US holiday weekend - markets will be closed on Monday for Independence Day

Today's lurch to the upside is the latest in a series of increasingly volatile and swift fluctuations this week. The complex has seen hefty swings in both directions - a rollercoaster pattern that is set to continue.

"After the weakness of late and with the dollar weakening there may well be some near-term buying interest and therefore room for a bit of a bounce. But we feel rallies will be seen as selling opportunities," Adams said.

Despite the short-term pick-up, there are growing fears of a "double-dip" recession as sluggish economic data has undermined financial markets over the last month. On Thursday, data showed the US manufacturing sector deteriorated in June, while pending home sales dropped 30 percent on the previous month.

Also, China's manufacturing output in June grew at the slowest pace in months on government actions to cool the property market and curb bank lending.

"This latest set of data spurred concerns over a slowdown in global economic growth and thus weighed on base metals which are highly cyclical assets," broker Credit Suisse said. "Following a weak ADP employment report earlier this week, the job numbers could disappoint and drag sentiment further."


Inventory data provided a supportive backdrop - there were stock falls in all the base metals, steel and the main alloy and plastics contracts - which was encouraging ahead of the usual summer slowdown period for end-use.

Copper was back above the $6,500 per tonne level, trading as high as $6,535, up three percent, before the market settled at $6,512, well above the $6,335 Thursday close. Inventories continued to fall - down 2,125 tonnes at 447,300 tonnes, the lowest since early December 2009.

Aluminium, although higher, was unable to move back above $2,000. It traded at $1,958, up $32. Again, there was an inventory decline - stocks fell 5,150 tonnes to 4,416,875 tonnes, a fresh low for nearly 12 months, as the mountain of cancelled warrants - metal booked for removal - works through the system. At present, 281,025 tonnes are cancelled, a backlog that will take months to whittle down.

Elsewhere, zinc business at $1,810 was up $67, while stocks fell 75 tonnes to 616,825 tonnes. Lead traded at $1,770, a $35 gain, while stocks fell 775 tonnes to 189,700 tonnes.

Nickel traded at $19,340, up $340. Stocks fell for the 18th day in a row - down 348 tonnes at 123,420 tonnes, a fresh low since late October 2009. Tin was $290 higher at $17,250, while stocks fell 205 tonnes to 17,230 tonnes, the lowest since early June 2009.

Med steel billet was $410/440, wider than the previous $425/435 - stocks dropped 455 tonnes to 28,795 tonnes. In the minors, there was an unusually high trade of $37,100 on molybdenum, with the market subsequently indicated at $27,500/33,500. Cobalt was neglected.

(Editing by Mark Shaw)