BASE & PRECIOUS METALS - European Morning View - Rallies look robust

By: William Adams

London 03/01/2013 -  Metals reacted very positively to US’s side-stepping over the fiscal cliff with the base metals rallying an average of 3.6 percent, with aluminium for once in the lead with a 4.5 percent gain to $2,161, copper was up 3.2 percent to $8,200 and lead was up 4.2 percent to $2,426.50. Precious metals were also upbeat with average gains of 1.3 percent, with silver leading the run higher with a 2.4 percent gain to $31.04, while gold was up 0.7 percent at $1,686.85.

Data out yesterday showed US ISM manufacturing PMI and UK manufacturing PMI both climb back above the 50 divide, while in Europe the data was mixed, with EU manufacturing PMI coming in at 46.1. However, with the US’s and China’s recovery looking more sound, the markets have something to be cheerful about, even if there are still many huge hurdles to be tackled down the road, the next one likely being the US debt ceiling.

This morning the tone remains bullish with the base metals up an average of 1.1 percent, lead and zinc are up around 1.7 percent at $2,469 and $2,178 respectively, while copper is lagging behind with a 0.4 percent gain to $8,230. Volumes have been above average with 8,007 lots traded, but the higher volumes are more widely spread between copper, aluminium, lead and zinc, which suggest broad-based buying interest. Precious metals have been quieter with average gains of 0.1 percent – see table on right.

Data already out shows China’s non-manufacturing PMI climb to 56.1 from 55.6 and that, along with strong performance in markets yesterday, are helping to underpin the stronger tone in Asia as seen by the 0.7 percent rise in the Nikkei, the 1.7 percent rise in China’s CSI 300, although the Hang Seng is little changed and the broader MSCI Asia Apex is off 0.3 percent. The Shanghai Futures Exchanges remains closed. Yesterday the Euro Stoxx 50 closed with gains of 2.9 percent and the Dow closed up 2.4 percent.

Currencies – the dollar has continued to edge higher with the dollar index up at 79.98, up from lows of 79.03 from December 19. The euro is edging lower, last at 1.3145, sterling is last at 1.6235, the aussie is at 1.0500, while the yen is at 87.30 and the yuan is weaker at 6.2348. Given the spotlight is likely to fall on the US debt ceiling that is likely to need lifting in the next few months, we would not be surprised if dollar strength was relatively short-lived, which may well work in favour of gold.

On the economic agenda there is data out on Spanish and German unemployment change, EU money supply and private loans, UK construction, UK loan conditions and in the US there is the start of the employment report with Challenger job cuts, ADP non-farm employment change, initial jobless claims, plus vehicle sales and the FOMC meeting minutes – see table for more details.

The rallies across the base metals are looking robust – copper and aluminium have cleared their December highs, lead, zinc and tin have cleared the December and September highs, while lead has also cleared the high set in January last year at $2,329. The Jan/Feb 2012 highs in the other metals are as follows: Cu $8,765; Al $2,361.50; Ni $22,150, Zn $2,220 and Sn $25,880.

For now, in the absence of any negative jolt from out of the blue, we would look for the rallies to continue as optimism over the US and Chinese recoveries gathers momentum and as after a long period of destocking, apparent demand is likely to pick-up as consumer return to a hand-to-mouth existence. Should consumers feel confident enough to restock then the rallies could be even stronger. That said, we would caution that there is still a lot of uncertainty around and apart from tin, the forecasts are generally for supply surpluses. Overall, the pick-up in ‘apparent’ demand may be enough to lift prices to higher sideways trading ranges, but we see little justification for major bull runs to get underway.

Given quantitaive easing is likely to remain in force and the combination of ultra-loose monetary policy and a pick-up in growth could be seen as inflationary, plus with the uncertainty over the US debt ceiling and the EU debt crisis, we also feel bullion will remain sought after.


Metals overnight Performance
GMT7:09 AM+/-+/- %Lots
Steel 33000.0%Total lots
 Average (BM ex-Steel)1.1%8007
 Average PM0.1% 


Economic Agenda
1:00amChinaNon-Manufacturing PMI56.1 55.6
7:00amUKNationwide HPI m/m-0.1%0.1%0.0%
 8:00amEU Spanish Unemployment Change50.3K74.3K
8:55amEUGerman Unemployment Change11K5K
9:00amEUM3 Money Supply y/y 3.8%3.9%
9:00amEUPrivate Loans y/y -0.5%-0.7%
9:30amUKConstruction PMI 49.649.3
9:30amUKBOE Credit Conditions Survey   
12:30pmUS Challenger Job Cuts y/y  34.4%
1:15pmUS ADP Non-Farm Employment Change134K118K
1:30pmUS Unemployment Claims 356K350K
All DayUS Total Vehicle Sales 15.3M15.5M
7:00pmUS FOMC Meeting Minutes