Market and product

The metals continued to rebound yesterday with average gains of 1.4 percent, aided by firmer oil and equity prices. Later, the FOMC statement dampened sentiment, as it was considered middle-of-the-road and that was seen as being disappointing. Tin remains the outperformer, it rallied 2.8 percent, followed by a two percent rise in aluminium, while copper, lead and tin were all up around 1.2 percent with copper at $4,577 and nickel was off 0.2 percent. Precious metals were bullish yesterday with average gains of 0.6 percent spread between a 0.1 percent rise in silver to a one percent rise in palladium. Gold prices closed up 0.5 percent at $1,124.70, having been as high as $,1,128.20.

This morning the base metals are down across the board by an average of 0.5 percent, led by a one percent drop in zinc, the rest are down between 0.3 and 0.5 percent with copper at $4,556. Volume has been average at 5,323 lots. Disappointment that the Fed was not more dovish seems to be weighing on sentiment as their stance has not weakened the dollar, at least not yet.

Precious metals are for the most part weaker with gold, silver and platinum, off an average of 0.5 percent, while palladium is up 0.1 percent, but has still to move up above recent resistance.

In Shanghai, the base metals are mixed, tin is the strongest with a 0.9 percent rise and nickel is off 0.1 percent, the rest are up between 0.1 percent for zinc and 0.6 percent for copper at Rmb 35,750. Spot copper in Changjiang is up 0.1 percent at Rmb 35,450-35,550, the spread with the futures has widened to an equivalent of $30 per tonne contango, which suggests possible short-covering in futures, while good imports keep the spot prices capped. The LME/Shanghai copper arb remains around 7.85, so the arb window remains open, which should support LME prices, especially as recent trade data shows importers are taking advantage of the arb.

In other metals in China, gold is up 0.3 percent, silver is off 0.1 percent, iron ore prices climbed yesterday to $42.30, steel rebar is off one percent, while crude oil prices in global markets are off 0.5 percent at $32.82.

Equities were firmer ahead of the FOMC statement, the Euro Stoxx 50 closed up 0.4 percent, but the Dow closed off 1.4 percent and Asia this morning is generally weaker with the Nikkei off 0.7 percent, the Hang Seng is off 0.6 percent, the CSI 300 is down 0.9 percent, while the Kospi is little changed and the ASX 200 is up 0.6 percent – no doubt helped by firmer commodity prices of late.

The dollar index is slightly firmer at 99.07, the euro is at 1.0875, sterling has given back some of its gains, last at 1.4250, euro sterling is at 0.7633, the aussie is firmer at 0.7047 and the yen is weaker at 118.76. In emerging market (EM) currencies the rouble and ringgit are firmer, helped by oil, the yuan is flat at 6.6128, the rupee continues to weaken, last at 68.07, while the other EM currencies we follow are flat.

The economic agenda is busy with German price data, Spanish unemployment, UK GDP, index of services and CBI realised sales. US data included durable goods orders, initial jobless claims, pending home sales and natural gas storage. Late this evening, there is a host of Japanese data out – see table below.

Base metals have been having a bit of a run to the upside, it has not been powerful, apart from tin, but a steady rise may be more sustainable. Tighter spreads, with copper, aluminium zinc and tin in backwardations, point to short-covering, while nickel and lead remain in contango. The further the rebounds go the more short-covering is likely to be seen, but we do not feel there is much consumer appetite to restock yet.

The steady tone in gold prices of late is leading most of the precious metals higher, gold prices have now climbed 7.8 percent off their early December lows, so the move is not that large in percentage terms, although it is starting to look constructive on the charts. Silver is up 6.8 percent, platinum has climbed 8.9 percent in four days, while palladium has been reluctant to follow platinum in recent days, but prices had already bounced and at their highs of $509 on January 22, prices were up 12.6 percent above their mid-Jan lows. On balance, we feel all the precious metals remain oversold in the big picture, so would not be surprised to see prices work higher.