This market comment was written at 7:55 a.m. on July 23rd US east coast time...
Metals extended their gains into a fourth day on Thursday, with copper rallying to its highest level in more than two months, as did zinc and lead. However, some of the gains faded by late in the session as a number of metals ran into key resistance points. In copper's case, prices backed off after hitting resistance of $7050, while aluminum had trouble maintaining gains above $2050, both levels capping the top end of the trading ranges.
A number of factors were behind yesterday's advance including a surprising recovery in the US stock market, weather concerns in the Gulf of Mexico that fueled the energy complex, and constructive macro releases out of both Europe and the US. Of the three, the recovery in the US equity market was perhaps the most dominant variable, as the magnitude of the rally must have caught shorts flat-footed, particularly after Wednesday's dramatic sell-off. It seems that equity investors staged an "about-face" after refocusing on a slew of relatively decent earnings reports. In this respect, Dow component Caterpillar reported higher sales and earnings due to better sales of mining and infrastructure equipment, while fellow component 3M also saying that 2010 profits will exceed earlier targets. In addition, although Fed Chairman Bernanke spoke again at a House hearing, his testimony was not much different from what he said the day before, thus allowing the markets to regroup somewhat.
On the US macro side, although the latest weekly initial jobless claims count disappointed by climbing to a higher-than-expected 37,000 week-over-week, there was better news on housing, where June home sales came in at an annualized rate of 5.37 million units, substantially better than the 5.09 million units expected. Leading indicators for June also came in on the positive side-- although the index slipped by .2%, it was better than the 0.4% decline expected.
In other markets right now, the euro is up against the dollar (trading at $1.2930) in the wake of an unexpected surge in German business confidence this month. In this respect, the Ifo institute said its business climate index jumped to 106.2, its highest level since July 2007. In other markets, sterling is also higher (now at $1.5440) on news that the UK economy grew almost twice as much as analysts forecast in the second quarter. Oil markets are down slightly by about $.40/brl after tacking on almost $3 of gains yesterday, while US equity markets are called to open higher, as relatively good earnings reports continue to stream in, with Ford being the latest one this morning.
Out of Asia, Taiwan’s industrial production rose for a 10th straight month in June, climbing 24% from a year earlier after rising a revised 31% in May, the Ministry of Economic Affairs said today.
We expect to see further gains later in the day in most markets, including metals, as results of the European bank stress tests get released around 6pm Brussels time. In the meantime, Swiss regulators are expected to give a clean bill of health to both Credit Suisse and UBS; Swiss bankers claim their tests are twice as tough as those being conducted by Brussels.
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COPPER SUPPORT: $6300 / RESISTANCE: $7050
We are now at $7010, up $2, but did get to a high of $7090 at one point earlier in the day. Stocks in Shanghai fell this past week, and are now at the lowest they have been since January. We expect some choppiness around $7050 resistance, but expect prices to push past this level going into Monday’s trading and once the stress test results are behind us.
* Japanese copper wire and cable shipments in June rose 5% from a year earlier to an estimated 56,100 tons, this according to data from the Japanese Electric Wire and Cable Makers' Association. Demand has now recovered to around 80% of pre-crisis levels due to brisk domestic off-take in electronics and auto-related components coming out of China.
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ALUMINUM SUPPORT: $1925 / RESISTANCE: $2050
We are now at $2030 on ali, down $14/MT, and very quiet. Prices did take out resistance at $2050 earlier in the day getting to a high of $2070, but have since receded back below it. We continue to see August/September trading at either side of level, while the August date itself is in backwardation by $2-$3 dollars going a few days out. The spread should likely come under pressure as we approach cash. NASAAC is at $1980-$1990.
* RUSAL said it had restarted operations at its Windalco Ewarton alumina plant in Jamaica that was mothballed in 2009 due to the recession. The company plans to process 321,000 tons of alumina at the refinery, which has an annual capacity of 650,000 tons. RUSAL's total aluminum output was 3.9 million tons in 2009, a reduction of 11% from 2008, while alumina output totaled 7.3 million tons in 2009, down 36% from 2008. The company expects to boost alumina output by 11% this year and aluminum by 3%.
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ZINC SUPPORT: $1720 / RESISTANCE: $1970
We are at $1923, down $25. We did get close to $1970 resistance earlier in the day, but have since backed off. However, with prices talking out a triple-top around $1900 mark, we could see further gains from here. Stock levels were down by about 4,200 tons in Shanghai.
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LEAD SUPPORT: $1880 / RESISTANCE: $2150
Prices are now at $1951, up $11, and we could be on track for a test of $2150.
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NICKEL SUPPORT: $18,000 / RESISTANCE: $20,500
We are $20,465 on nickel, up $210, and building on yesterday’s decent gains. We are approaching $20,500 resistance, which was breached briefly earlier today, so we could see further gains if this level is successfully taken out on a two-day closing basis.
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TIN SUPPORT: $18,250 / RESISTANCE: $19,300
Tin is at $18,750, up $175, and with two closes above $18,250, we could be on track for a retest of the recent highs at $19,300.
All known news had been factored into the market.
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