Market and product

The metals rallied strongly on Thursday, closing with average gains of 2.3 percent, up from 1.4 percent when Europe opened yesterday. Aluminium led the way with a 3.9 percent gain to $1,515.50 and copper closed up 2.1 percent at $4,637. At the day’s high the base metals were up an average of 3.7 percent.

Precious metals closed up with average gains of 0.4 percent, the industrial metal led the way with platinum up 0.9 percent and silver up 0.7 percent, while gold was up just 0.1 percent at $1,071.90.

This morning the metals have given back some of yesterday’s gains, the base metals are down an average of one percent, led by a two percent decline in nickel to $8,935, zinc is off 1.4 percent at $1,626.50 while aluminium and lead are down around one percent. Copper is little changed at $4,640. Volume has been high with 13,320 lots.

The precious metals are weaker, down an average of 0.6 percent, silver leads the way with a 0.9 percent drop to $14.13, palladium was off 0.8 percent at $548.80, platinum is off 0.2 percent at $849.20 and gold is off 0.4 percent at $1,068.

In Shanghai, the base metals are up an average of 0.8 percent as they follow the LME leads from yesterday, lead and nickel are off slightly, while the rest are firmer with aluminium leading the gain with a 3.5 percent rise, while copper is up 0.9 percent at Rmb 35,330. Spot copper in Changjiang is off 0.6 percent at Rmb 35,150-35,500, the backwardation with the futures is at an equivalent of $26 per tonne, while the LME/Shanghai copper arb ratio has expanded to 7.58, meaning the arb window is marginally open.

In other metals in China, steel rebar is down two percent, gold is off 0.3 percent, silver is off 0.6 percent and iron ore is weaker at $42.50.

Equities in Europe were firmer with the Euro Stoxx 50 up 1.1 percent, but Asia is weak this morning with the Nikkei off 0.3 percent, the Hang Seng is down 1.8 percent, the CSI 300 is off 4.4 percent (there is concern china may devalue the currency again), the ASX200 is down 0.2 percent and the Kospi is down 0.1 percent.

Currencies are quiet – the dollar index is at 99.72, the euro is at 1.0630, sterling is weak at 1.5093, euro/sterling is at 0.7042, the aussie at 0.7206 and the yen is at 122.37. Emerging market currencies are weaker with the yuan at 6.4480, the rouble at 66.23, the rupee is under pressure, last at 66.78, as is the rand at 14.3185, while the ringgit, real and rupiah are holding ground.

Economic data out of Japan showed disappointing household spending and lame CPI, but the unemployment rate eased to 3.1 percent. UK GfK consumer confidence eased, while German import prices dropped 0.3 percent. Later we get French consumer spending, Spanish flash CPI, UK GDP, business investment and index of services and Gfk German consumer climate – see table below.

The base metals have been rallying on the back of developments in China and we should get a better idea whether producers do agree to make cutbacks over the weekend. Whether the government steps into buy surplus metals remains to be seen. Talk of a potential probe into shorting, does seem to have prompted some short-covering. After the strong rallies, it seems as though some selling is starting to take advantage of the higher prices. Underlying sentiment remains bearish, so there does not seem a lot of trust in the rebounds. Although we see these rallies as counter trend moves, at least for now, we would not be surprised if they ran higher for a while longer. Many funds’ year-end is the end of November, so short-covering/book squaring is also likely to have been a factor in the market.

The precious metals are at best in consolidation mode, but having got little lift while other industrial metals have been rallying, suggest there is not much buying interest around. The strong dollar and a few weeks wait until the next FOMC meeting, are all acting as headwinds.