BASE & PRECIOUS METALS European Morning View - Looking brighter

By: William Adams

London - 21/03/2013 - The metals opened on a firmer footing yesterday after some strength in Asia, but by the close only copper, nickel and the PGMs held on to the bulk of their gains, they were up between one percent for platinum and three percent for palladium, while copper was up 1.5 percent at $7,619. The base metals ended the day with average gains of 0.6 percent. Bullion was under pressure, with gold closing down 0.5 percent at $1,605.75.

The market seems to be waiting to see how the EU bails Cyprus out, although generally we feel non-policymakers are probably relieved that Cyprus rejected the levy on bank deposits as that sends a strong signal to the EU not to try such a measure in the wider arena. That might well explain the knee-jerk positive reaction yesterday, but it still leaves the Cyprus issue unsolved and that could still lead to more trouble for the markets, albeit the numbers involved in Cyprus are relatively small, but with Western equities at such elevated levels – a down turn in these could pull industrial metals lower too.

This morning the base metals are up by an average of 0.6 percent and the precious metals are up 0.2 percent on average, with better than expected flash Chinese manufacturing PMI data beating expectations, coming in at 51.7 after 50.4 in February and an expected 51.2.

Lead is up the most with a 1.1 percent gain to $2,207.25, while the rest are up between 0.4 and 0.6 percent with copper last at $7,657. Gold is up 0.1 percent at $1,607.20, while platinum s up 0.4 percent at $1,580.50.

In Shanghai the June base metals contracts are up an average of 0.6 percent with copper leading the way with a 1.1 percent rise to Rmb 55,800, zinc is up 0.6 percent at Rmb 14,995, lead is up 0.4 percent at Rmb 14,705 and aluminium is up 0.3 percent at Rmb 14,730. Rebar is up 1.1 percent at Rmb 3,885, while gold is off 0.2 percent at Rmb 326.08.

Spot copper in Changjiang is up 1.1 percent to Rmb 56,100-56,400, which puts the spot price in a backwardation of an equivalent to some $95/tonne with the futures, while the LME/Shanghai arb remains more favourable with the arb open along the short-end of the curve. This should help o support LME copper prices.

Equities managed to shake off the Cyprus jitters yesterday, the Euro Stoxx 50 closed up 1.4 percent and the Dow closed up 0.4 percent, but the mood is Asia is mixed – the Nikkei is up 1.3 percent, but it was closed yesterday so had some catching up to do, the Hang Seng is off 0.3 percent, the MSCI Asia Apex is down 0.1 percent and China’s CSI 300 is up 0.2 percent.

Currencies – the dollar is holding up in high ground with the dollar index 82.81, the euro is holding above recent lows, last at 1.2932, cable is attempting to rise, last at 1.5130, the aussie is consolidating at 1.0370, as is the yen at 95.82, while the yuan remains strong at 6.2125.

The economic agenda is busy today with the focus likely to be on the flash PMI data coming out across Europe and the US. In addition, we get UK retail sales and the public sector borrowing requirement, BoJ Governor Kuroda is speaking and in the US we get initial jobless claims, HPI, existing home sales, Philly Fed manufacturing index and leading indicators – see table attached for more details.

Having sold off in recent weeks and days, it looks as though the metals’ corrections may well have run their course for now and the lower prices may now attract bargain hunting. The pull back in recent weeks has given traders the opportunity to adjust to the aftermath of the Italian election that threatened to re-ignite troubles in Europe, as did this week’s scare over the Cypriot bank levy. But having reacted negatively, the bargain hunters may well feel braver now, especially in light of the better Chinese PMI number.

The late October to February rally was fuelled by high hopes that China would see a stronger recovery and that would join forces with the US recovery, but a bout of weak Chinese data, plus the set-backss in the EU dampened sentiment, but if China’s PMI data is showing the recovery is now back on track, then a more optimistic outlook could prevail. As such, we would not be surprised to see the industrial metals pick-up now. Needless to say, we should be braced for some disappointing EU PMI data. This set-up may prove difficult for bullion, although we would expect continued concerns about currency debasement and competitive devaluation to underpin the market.  


Metals Overnight Performance
GMT07:12+/-+/- %Lots
Steel 37500.0%Total lots
 Average (BM ex-Steel)0.6%13459
 Average PM0.2% 


Economic Agenda
ChinaHSBC Flash Manufacturing PMI51.751.250.4
4:30amJapanAll Industries Activity m/m-1.4%-1.1%1.6%
 8:00amEU French Flash Manufacturing PMI44.443.9
 8:00amEU French Flash Services PMI 44.142.7
8:30amEU German Flash Manufacturing PMI50.850.3
8:30amEU German Flash Services PMI 54.954.1
9:00amEU Flash Manufacturing PMI 48.247.9
9:00amEU Flash Services PMI 48.247.3
9:30amUKRetail Sales m/m 0.5%-0.6%
9:30amUKPublic Sector Net Borrowing 8.4B-9.9B
10:00amJapanBOJ Gov Kuroda Speaks   
TentativeEU Spanish 10-y Bond Auction  4.92|2.3
11:00amUKCBI Industrial Order Expectations-16-14
12:30pmUS Unemployment Claims 343K332K
1:00pmUS Flash Manufacturing PMI 55.154.3
 US HPI m/m 0.7%0.6%
2:00pmUS Existing Home Sales 5.02M4.92M
2:00pmUS Philly Fed Manufacturing Index-1.6-12.5
2:00pmUS CB Leading Index m/m 0.3%0.2%