LME metals were pounded yesterday, with copper tumbling by about 5% and dragging all the other metals down with it. Lead and nickel each lost about 6% on the session, and there were sharp declines in ali and zinc as well, although tin held up better than the rest. Given the high degree of correlation between copper and the S&P 500 (some 86% since early March), yesterday's steep 290-point drop in the Dow was the primary catalyst behind the selloff in metals. Ongoing worries about US banks was what worried investors, especially after the Bank of America posted its latest earnings report. Although the bank beat estimates, it unnerved investors by saying that it would have to post an additional $6.4 billion in reserves to fight off deteriorating loans. Additionally, rumors that the government may swap its debt for ownership stakes in the banks was another source of consternation, as was the stronger dollar, which managed to hit a one-month high against the Euro. The dollar has not been much of a price driver for metals in recent weeks, but its solid advance on Monday dovetailed the severe weakness in US equities, and proved too much for the complex this time around.
We think the selloff in metals was also attributable to the less-than-stellar macroeconomic numbers that have come out of the US of late. We have alluded to this fact in previous commentary, reminding readers that recent US macro numbers have been unusually soggy, and thus capable of reversing the price gains made in recent weeks. The March index of leading economic indicators was the latest report to disappoint, with the measure falling by .3% for its 10th straight monthly decline, and coming in below estimates.
LME markets are getting hammered once again today, following limit-down moves in Shanghai. However, despite the steep plunge of the past 24 hours, our charts show that apart from nickel, all the other metals are within their up channels, and have not yet broken down technically. Of course, another day of a heavy selling could change that, but for now, the channels seem to be holding, as our charts illustrate. Moreover, we are not seeing synchronized weakness in oil and equity markets today. Energy markets are, in fact, slightly higher, while US stocks are expected to open flat. In addition, the dollar is slightly weaker today, so all these elements could keep the current selling we are seeing in metals somewhat in check over the course of the day.
What does concern us over the intermediate term is the looming May 4th deadline by which the government will announce the results of its stress tests for leading banks. The run-up to this date will likely cause apprehension in most markets, as no one knows what the government will announce (or conclude) about the state of the banks. In fact, some of the deterioration in the equity markets yesterday was attributable to rumors that the government’s assessment of the banks was quite negative, which is why reports surfaced early in the day that the government may be considering converting its ownership stake in the banks into equity as a means of bolstering bank capital. No confirmation of this came forth, but should it gain credence, we could see a further selloff in US equities, with corresponding pressure being put on virtually all commodities.
No major data will be forthcoming out of the US today, but out of Germany, investor confidence rose to its highest level in almost two years in April, (mirroring the uptick we saw in US confidence readings last week). The ZEW Center for European Economic Research in Mannheim said its index of investor expectations rose to 13 from -3.5 in March. This is the highest reading since June 2007 and the first positive reading since July 2007. Economists polled by Bloomberg expected a gain of only two. Out of India, the central bank reduced interest rates for the sixth time to a record low, and is also forecasting that the economy will expand at its slowest pace since 2003. Growth is now expected to ease to 6% for the year starting April 1st, down from 7.1% seen last year.
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COPPER SUPPORT: $4300 / RESISTANCE: $5000
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COPPER SUPPORT: $4300 / RESISTANCE: $5000
We are at $4410 on copper, down $180. However, the short-term up channel (red line) is intact, and we do not break down technically until we get below $4300. Moreover, LME stocks were lower overnight, (off by 5000 tons), and the fact that energy and equity markets are holding their own, (with the dollar slightly weaker as well), may be enough to usher in support over the course of the day.
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ALUMINUM SUPPORT: $1400 / RESISTANCE: $1600
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ALUMINUM SUPPORT: $1400 / RESISTANCE: $1600
We are now at $1433 on ali, down $7; prices will break their recent short-term up channel if we dip below $1400, but a drop in LME stocks overnight, (by 10,000 tons), may lend some stability to the complex over the course of the day. In addition, markets are taking in the news that United Company RUSAL said it would cut Q1 aluminum production by 7.2% to 1.0 million tons. Overall 2009 output will be cut by 500,000 tons.
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ZINC SUPPORT: $1400 / RESISTANCE: $1525
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ZINC SUPPORT: $1400 / RESISTANCE: $1525
We are at $1426 on zinc, down $59, and working sharply lower over the past two days. Nevertheless, our charts show that the short-term up channel remains intact, and will only be taken out with a break below $1400.
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LEAD SUPPORT: $1350 / RESISTANCE: $1650
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LEAD SUPPORT: $1350 / RESISTANCE: $1650
We are at $1418 on lead, down $37, but the complex looks to be the strongest among the metals technically, as it is some ways away from reaching channel support at $1350.
* North American shipments of replacement automotive lead-acid batteries in February fell 14.27% from January, and slipped 0.57% from a year earlier, this according to Battery Council International. February shipments declined to 7,120,006 units from 8,305,158 units in January, and were slightly below the 7,160,839 units shipped in February of 2008. For the year through February, replacement battery shipments rose 3.43% to 15,425,164 units thanks to a stronger order rate in January.
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NICKEL SUPPORT: $10800 / RESISTANCE: $13,500
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NICKEL SUPPORT: $10800 / RESISTANCE: $13,500
Nickel is at $11,450, down $625, and looking the weakest in the group technically, as charts seem to have broken their modest up channel. Another close below $12,100 (likely) could set up a test to $10,800 support.
* Cuba said its three nickel processing plants would remain open despite weak nickel prices. "Thousands of families in Moa, Nicaro and other areas in Holguin depend on nickel. International nickel prices have fallen close to 80 percent ... but not a single worker in the industry has been thrown onto the street," it said in a report.
* Global crude steel production fell 22.8% to 264 million tons in the first three months of this year, figures from the World Steel Association showed on Tuesday. Crude steel output in March was down 23.5% year-on-year at 92 million tons. Bucking the trend, China posted a rise of 1.4% in the first quarter, while all other major steel producing countries showed a fall in the same period.
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TIN SUPPORT: $10200 / RESISTANCE: $12500
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TIN SUPPORT: $10200 / RESISTANCE: $12500
We are at $11,840, down $205, but holding above our up-channel, which will break with a dip below $11,750.
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