This market comment was written at 8:15 a.m. on July 27th US east coast time...
Although somewhat overextended technically, metals opened the week with another solid gain, with copper extending its advance to a 10-week high. The complex was boosted by a weaker dollar, as well as by the stronger tone in the US equity markets, where stocks pushed higher on account of both new home sales coming in better than expected, as well as a spate of decent earnings reports from the likes of Federal Express. The company beat earnings and moved its guidance higher, strongly implying that the US economic recovery remains on track, at least viewed through the prism of shipments. More broadly, out of the 175 S&P 500 companies that have reported through last Friday, 78% have beaten estimates, with leadership coming from technology, financials, and the industrial sectors.
Metals are mixed right now, erasing earlier losses in Asian trading. We still expect the complex to retrace slightly over the next day or two, but any decline should be used a buying opportunity, particularly if the macro numbers out of the US come in better than expected. Later today, we get July consumer confidence readings, which could be important, as last time around, an unexpected plunge in one of these readings helped send a number of markets sharply lower. We do not expect a repeat this time around, and so we will likely see relatively stable markets in place for a little while longer, with any expected retracement proving short-lived. The big item this week will be the second quarter GDP report on Friday, which likely will influence the tone going into next week as well.
In other markets, energy prices are slightly higher, up by about $.25 a barrel, while US stocks are on track for another higher opening on the back of more favorable earnings reports, this time from the likes of Dupont and several European banks.
In corporate news, Robert Dudley will replace embattled CEO Tony Hayward on Oct. 1, BP confirmed today, as it reported a record quarterly loss and set aside $32.2 billion to cover the costs of the oil spill in the Gulf. BP said the charge led it to record a loss of $17 billion for the second quarter, compared with a profit of $4.39 billion a year earlier. It is the first time in 18 years that the company has been in the red.
In the metals world, there is a good Bloomberg article referenced in the link in our attachment that talks about the growing feud between Oleg Deripaska and Vladimir Potanin over how to spend Norilsk's growing cash hoard, now estimated at about $14.3 billion.
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COPPER SUPPORT: $6300 / RESISTANCE: $7050
We are now at $7108, down $40, but did get to a low of $7065 earlier in the day. The $7050 resistance continues to look quite stubborn, as the market failed to close above it yesterday by a $1. Unless we get two consecutive closes above this mark, we expect the choppiness to continue for a while here.
* Xstrata posted a 3% fall in first half copper output ahead of financial results next week. The company said that mined copper output fell to 434,147 tons due mainly to reduced volumes and lower grades at its Mount Isa and Ernest Henry mines.
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ALUMINUM SUPPORT: $1925 / RESISTANCE: $2050
We are now at $2063 on ali, up $7/MT, and unlike copper, we did take out $2050 resistance yesterday on a closing basis. Another close above this mark, suggests further gains from here. NASAAC is at $2030-$2040.
* Unwrought aluminum inventories in the Western world fell to 1.192 million tons in June from a revised 1.306 million tons in May, industry data showed. Total aluminum smelter stocks, not including finished end-products, decreased to 2.255 million tons at the end of last month, compared with a revised 2.394 million tons in May.
* Norsk Hydro sees 12% growth in its markets this year and posted stronger-than-expected second quarter earnings on Tuesday. "The solid results are attributable to higher sales volumes, combined with firm margins and tight cost control in a seasonally strong quarter," Chief Executive Officer Svein Richard Brandtzaeg said in a statement. Hydro said it saw increased demand for aluminum (excluding China) during the second quarter, but still expects a surplus for this year.
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ZINC SUPPORT: $1720 / RESISTANCE: $1970
We are at $1940, down $14, but still look technically constructive on the charts. The $1970 resistance level has yet to be seriously tested though.
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LEAD SUPPORT: $1880 / RESISTANCE: $2150
Prices are now at $1995, down $20; we should be on track to push toward $2150.
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NICKEL SUPPORT: $18,000 / RESISTANCE: $20,500
We are $20,758 on nickel, down $42. Surprisingly, we did close above $20,500 resistance yesterday, and another close above this mark today could set up the complex for further gains.
* Reuters ran an interesting piece today saying that reduced demand for nickel in China is prompting owners of refined nickel stored in bonded warehouses to re-export the metal. One analyst at research group Antaike estimates that nickel exports could be 60,000 tons this year after the country has exported 33,000 tons over the first half. In addition, abundant supplies of stainless steel in China is weighing on domestic prices, as is increased use of nickel pig iron, where production is expected to come in at 150,000 tons this year, about 50% higher than previous Antaike estimates. However, NPI production may fall in the second half, partly due to higher costs for electricity and coal, a producer in southern China told Reuters.
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TIN SUPPORT: $19,300 / RESISTANCE: $21,000
Tin is at $19,500, up $100, and looks the most solid on the charts. With a second-day close above $19,300 in the bag yesterday, we likely indicate will see an eventual climb to our next upside target of $21,000.
All Known news has already been factored into the maket
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