Analyst Ed Meir looks at what is moving the metal markets on
Thursday May 3.
Copper and General Commentary:
fell to their lowest level in a week on Wednesday, as ongoing
concerns about slowing EU, Chinese, and to a lesser extent, US
growth, weighed on the market.
In fact, for some time now, metals have been trading in
lacklustre fashion, unable to get anything meaningful going on
the upside given the increasingly dour macro statistics that
have been coming our way. However, we are not seeing a price
collapse either, as the US economy is still chugging along, and
Chinese demand, while reduced, is still a force to be reckoned
In coppers case, severe supply constraints and declining
inventories are also helping prop up prices, providing ballast
for the rest of the metals. The exception seems to be nickel,
which although up right now, is looking extremely poor on the
charts and close to breaking down to fresh lows.
In terms of US macro items, in addition to the
weaker-than-expected ADP number out Wednesday, the
governments more important employment report is slated
for release on Friday and is projected to show April payrolls
increasing by 160,000 following last months tepid 120,000
rise. However, here too, we could be in store for a
disappointment given the uptick we have been seeing lately in
the weekly initial claims. Although the latest numbers (out in
the last hour) came in at 365,000, and were well below last
weeks reading, they were about in line with
already-reduced market estimates, and so did not constitute
much of a surprise.
Outside of the labour data, the Commerce Department reported on
Wednesday that factory orders fell by 1.5% after a revised 1.1%
gain in February. The decline did not cause as much of a stir
since it was relatively in line with estimates and was offset
in large part by Tuesdays stronger-than-expected ISM
Later in the day, we get April ISM services readings
expected at 55.5, almost unchanged from last month.
Service readings were also released from China overnight,
showing the sector grew at a slower pace in April than the
month prior. In the meantime, Bloomberg quotes a Chinese
newspaper as saying that the countrys central bank may
cut the reserve ratio again as early as this weekend. China has
reduced reserve requirements for its banks twice since
November, although it has yet to move on rates. Such moves may
boost metals temporarily, but we think the bounces will be
short-lived, as easier credit is not going to solve what seems
to be a business-cycle type of slowdown that needs to run its
In the European debt markets, Spanish bonds gained after the
latest auction exceeded targets; the government sold about $3.3
billion of three-year paper at 4.037%, up from 2.617% from
early March. This was the first long-term auction since
Standard & Poors lowered Spains credit rating
last week, but the fact that the issue was well spoken for and
that three-yields remain below 5% seems to have comforted
Out of France, bond rates declined ahead of that countrys
key election slated for this weekend. Ten-year bond yields came
in at an average yield of 2.96%, down from 2.98% on April 5.
Right now, metal prices are off, and we are seeing modest
declines in both energy and precious metals as well. US stocks
are expected to open higher on account of a steadier tone in
Europe and an impressive recovery in the Chinese stock market,
which managed to close at a 7-week high partly on hopes of
further easing. The euro is steadier, trading at $1.3160 after
the ECB left rates unchanged, but ECB head Mario Draghi warned
that downside risks are still prevalent in the eurozone.
Technically, we are now at $8,259 on copper, down $45. LME
stocks continue to decline, off another 3,750 tonnes overnight.
However, the percentage of cancelled warrants seems to be
easing (now in the low 30s), suggesting that the pace of
withdrawals may be slowing.
Spreads are loosening up quite dramatically as well; cash/May
is now at $45 back, with tom/next collapsing, now at $2
contango. May/June and June/July are at $14 and $8 back,
respectively, about where they were on Wednesday. The full
cash-to-threes spread is around $65, about $20 lower than
Ali is now at $2,087, down $11 as
we seem to be backing away from the $2,125 resistance level
that held earlier this week.
Zinc is at $2,003, down $17.
Lead is at $2,100, down $31.
Nickel is at $17,477, up $192, and
about where we were at this time on Wednesday; charts continue
to look weak.
Tin is at $22,200, down $200.