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MEIR ON METALS: Metals slightly higher despite Spanish downgrade, soft US GDP number

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Analyst Ed Meir looks at what is moving the metal markets on Friday 27 April.

Copper and General Commentary: Base metals finished sharply higher on Thursday, as the lingering after-effects of Chairman Bernanke’s comments continued to pressure the dollar, forcing it to slide to $1.3263 against the euro – a three-week low. Other markets saw good gains as well; precious metals and US equity markets both finished higher, with stocks putting together their best three-day gain since February amid decent earnings reports.

Right now, markets are mixed, with base metals recovering from early losses and now modestly higher, but precious metals and energy are both down. The euro is steady at $1.3230 and US stocks are expected to open flat.

Some of Friday’s buy-side momentum has been knocked back on reports out late Thursday that S&P downgraded Spain’s credit rating by two notches, citing “a challenging fiscal outlook”. S&P cited the worse-than-expected deterioration of the country’s budget and a growing likelihood that the government will need to provide aid for the country’s banks that have been hit hard by mounting real estate losses.

If this were not enough, the government also reported today that Spain’s unemployment rate shot up to 24% in the first quarter, while retail sales slumped for the twenty-first consecutive month. “Spain is in a crisis of huge proportions,” Foreign Minister Jose Manuel Garcia-Margallo said in a radio interview.

For his part, the country’s economy minister had to again deny reports that the country was seeking outside help. “Nobody has asked Spain, either officially or unofficially” to turn to Europe’s bailout mechanisms, he said in an interview late yesterday. “We don’t need it.”

Out of the US, we just got first quarter GDP figures, and this came in at 2.2%, less than the 2.5% consensus. Markets seem to be taking the number in stride so far, with its slightly bearish impact on commodities being offset somewhat by the possibility that the dollar could now weaken.

Out of Japan, the government reported that industrial production rose less than forecast in March, further strengthening the case that economic growth could slow later this year. Output was up only 1% from February compared with a 2.3% median forecast. A separate release showed consumer prices rising 0.2% from a year before, exceeding estimates.

Out of China, the Chinese central bank guided the yuan to a record high for a second straight day today. The dollar/yuan rate is now at 6.2787, its highest since 2005. The move comes after Treasury Secretary Geithner said on Thursday that China hasn’t gone far enough in its efforts to open its economy or allow its currency to appreciate, outlining key concerns ahead of a Chinese summit.

Also out of China, there is a good Bloomberg article on the country’s real estate sector and the government’s efforts to prop up activity through low income housing. There is also a companion piece in today’s Wall Street Journal on the state of the US housing market

Technically, we are now at $8,370 on copper, up $50, and off by about $20 after the GDP number came out. LME stocks continue to decline, off another 3,500 tonnes overnight, with cancelled warrants around 39%. Tom/next was quoted at $10 back, trading between $3 and $12 earlier, while the cash-to-three’s spread was last quoted at $135-$145. COMEX looks quite strong as well, with both the 100-day and 20-day moving averages taken out as of Thursday’s close.

Aluminium: Ali is now at $2,111, up $25 and about where we were at this time on Thursday.

Zinc: Zinc is at $2,038, up $1 and fairly quiet today with roughly a $25 trading range in place. There is modest resistance around the $2,050 mark.

Lead: Lead is at $2,134, up $12.

Nickel: Nickel is at $18,400, up $200.

Tin: Tin is at $22,500, up $190.

Ed Meir
editorial@metalbulletin.com

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