Analyst Ed Meir looks at what is moving the metal markets on
Monday April 16.
Copper and General Commentary: Copper prices
punched below the $8,000 mark for the first time in three
months on Friday, as disappointing GDP data out of China
weighed on the metals group and other complexes. For the week
as a whole, copper was off some 4%, among the worst performers
in the CRB index. In addition, the selling occurred in heavy
volume, with Friday's COMEX turnover nearly two-thirds above
the 30-day average according to Reuters data.
The question now raging among China-watchers is just how long
and how deep will this slowdown go on; we have gone on record
as saying we suspect the deceleration will be deeper and last
longer than the conventional forecasts have it, meaning that
the metal's outlook for the balance of the year will be
restrained at best.
Markets opened sharply lower earlier on Monday, but have since
recovered. Base metals are mixed right now, while precious
metals are lower, but off earlier lows. The euro is trading at
$1.3040, although it did take out the $1.30 level at one point
earlier, hitting a low of $1.2995.
US equities have opened higher, as the earnings parade
continues, with another 86 companies reporting this week. Of
the 32 companies reporting so far, Reuters reports that 75%
have beaten estimates.
Brent prices are lower for a second straight day after weekend
talks with Iran on its nuclear program yielded little, except
for an agreement to talk again in May. Nevertheless, the talks
were deemed to be "constructive" by Catherine Ashton, the
European Union's foreign policy chief, and junior staffers from
the various sides will now meet prior to the next summit
meeting in an attempt to bridge additional differences.
All eyes will remain on the European debt markets this week,
where prices remain under pressure. Spanish 10-year yields are
now well above 6%, their highest level since December and
credit default swaps have pushed higher as well.
Reuters writes that breaking the 6% level is important, as that
was when yields started to move even higher when that level got
decisively taken out. At 7%, Greece, Portugal, and Ireland all
struggled to raise more debt, and were ultimately forced to
seek financial aid. Spain is expected to sell more paper
tomorrow in an auction that no doubt will be closely watched.
In the meantime, European officials travel to Washington later
this week for the International Monetary Fund's spring meeting
in an attempt to possibly secure new funding for the agency.
Right now, the IMF has less than $400 billion available to
Out of France, presidential elections will take place over the
next few weeks, with first round results due on April 29,
followed by a second-round vote scheduled for May 6th.
Socialist candidate François Hollande has extended his
lead to 56% against 44% for president Nicolas Sarkozy. A defeat
for the sitting French president could throw the powerful
German-French axis, which was so instrumental in setting
European debt policy, off balance for at least months on end.
Out of China, the government announced over the weekend that it
will widen the yuan's trading band for the first time since
2007 to 1% from 0.5%. The move seems to be conveniently timed
ahead of this week's IMF meeting and was partly put through in
order to deflect the inevitable pressure that China will face
on its currency.
The Yuan ended last week at 6.30 and is up about 8.3% since
June 2010, but so far this year, it has hardly appreciated,
trading basically flat. It did not do much of anything in the
wake of the recent band announcement, actually weakening at the
outset before recovering some of its losses.
On the US macro front, we just got March retail sales out in
the last hour, coming in at .8% and substantially better than
estimates. However, the Empire Manufacturing Index
disappointed, coming in at 6.6 versus the 17.50 expected. Later
in the day, we get the April NAHB housing market index
(expected at 29).
March housing starts and building permits come out on Tuesday
(expected at 700,000 and 710,000, respectively). March
industrial production also comes out Tuesday (expected at .2%).
On Thursday, we get weekly initial claims data (expected at
375,000), as well as March existing home sales (expected up
4.62 million units annualised), and the April Philadelphia Fed
index reading (expected at 10.3). The index of leading economic
indicators for March comes out Thursday as well (expected at
Technically, we are now at $8,000 on copper, up $10, and
trading roughly in a $100/MT range of between $7,885 and $7,998
so far. Charts, however, look poor, especially after the
February lows were taken out last week, while an attempt to
rally back into the trading range also faltered. We suspect
prices will likely head lower from here, eventually making
their way to the mid-$7,000 range. LME stocks were off by 2,700
tonnes today, having rolled back much of last week's gains, but
this seems to be having no impact given the stock accumulations
in Shanghai and concerns about overall Chinese demand.
Aluminium: Ali is now at $2,075, up $5 and not
doing much, with a $20 trading range in place. Charts look
poor, suggesting an eventual retreat to $2,000. At that level,
the market could encounter support, as many producers will
likely announce further production cuts.
Zinc: Zinc is at $1,994, up $10. A brief
breakout above the down-channel faltered last week, perhaps an
indication that the market will move lower from here. Charts
suggest that prices could be making their way to next support
Lead: Lead is at $2,060, down $5, and holding
up fairly well, all things considered. We see the market
range-bound for the time being, trading between $1,960, the
recent low, and $2,120.
Nickel: Nickel is at $18,075, down $235, and
still struggling; charts suggest a further probe lower, perhaps
down to the low to mid-$17,000 mark.
Tin: Tin is at $21,650, down $555 and faring
particularly badly amongst the group, as a breach of $22,000
support has likely set off some stops. We are looking for two
days of closes below this point before moving our targets