Friday, July 16, 2010

Metals edge higher despite weaker equities as dollar remains under pressure

Forex Special - London, 16 July 2010 - Metals put in a volatile day yesterday, with markets generally weaker on the back of weak data in China and the US that may lead to downward adjustments in growth outlooks. However, the biggest loser was the US dollar that saw the dollar index extended its drop to 82.52 and the euro run up to 1.2916. If the dollar weakness is reflecting the poor data, then sentiment seems to be taking a turn for the worse and that raises the possibility of a more broad-based sell-off. 

At the close the base metals on average were roughly unchanged, having been up as much as 1.4 percent at their highs yesterday. Overall the patterns on the chart still look like continuation patterns with the dominant trend the down trend off the April highs. 

This morning the metals are most up slightly between 0.1 -0.6 percent, the exception is nickel that is down 0.6 percent. Copper at 07:20 BST was at $6,650, aluminium was at $2.014 and zinc was $2,197. Volumes mixed with 1,071 lots of copper and 1,190 lots of zinc traded, see table on right for more details.

Interestingly the metals seem to be benefitting from the weaker dollar, while equities seem to be down for the same reasons as the dollar - notably on the back of poor data. After the Dow's small loss yesterday, the Nikkei is down heavily, it is off 2.9 percent, the Hang Seng is little changed, China’s CSI 300 is down 0.4 percent and regionally the MSCI Asia Apex is down 0.7 percent. Japan seems to be under pressure due to the combination of a firmer yen and on fears that a slow down in US growth will hurt exports.

The dollar remains under pressure, the dollar index is at 82.54, the euro is at 1.2900, the pound is strong at 1.5395, the yen is strong at 87.20, the Aussie is at 0.8758, while the yuan is 6.7746. Gold is last at $1,207.70, while oil is weaker at $76.45.

In Shanghai the October contracts are down by an average of 0.2 percent, with copper down 0.5 percent at Rmb 52,640, aluminium is unchanged at Rmb 14,895, while zinc is down 0.2 percent at Rmb15,070. For some time now volume on zinc has been huge for example 1,303,448 lots have traded so far today ,compared to 271,592 lots of copper, this is thought to be due to more speculative and arbitrage trading, which would explain the often relatively large percentage moves in zinc prices in Shanghai and on the LME. 

Spot Changjiang copper is unchanged at Rmb 53,650-53,900, while the LME/Shanghai arb window has closed with imported LME priced at a premium of some Rmb 162, equivalent to some $24/tonne.

Today’s data is less bulky than yesterday’s with the focus likely to be on US CPI, TIC and the University of Michigan data.

Overall our view remains one where we see medium term risk to the downside, but prices in consolidation mode in the short term and are getting some lift from the weaker dollar, however, we feel the factors weakening the dollar are also likely to lead to weakness the metals.


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