Metals ended mostly lower yesterday, with copper losing the largest amount of ground. The session was noteworthy in that Thursday’s selling was confined mainly to metals, as energy finished slightly higher for a second day running, while US equities eked out a decent gain by the close as well. The weaker dollar should have also been another constructive factor for metals, as it was on the defensive for practically the whole day after the better-than expected European manufacturing survey came out. But in the end, none of these variables seemed to matter. Instead, it seemed that metal participants may have concluded that prices have done too much too quickly, and were due for a pullback despite what was happening in other markets -- perhaps an early kickoff to the “sell in May and go away” theory. More importantly, the pendulum may also be starting to shift away from the China-induced buying euphoria towards a realization that the rest of the world -including many of the country’s trading partners -- are still mired in recession.
Metals are mixed as of this writing, coming off a weak Shanghai session, where copper prices capped their worst week in more than a year following five straight weeks of gains. Unconfirmed talk of the SRB now selling some of its copper is making the rounds. This is undoubtedly weighing on sentiment and perhaps offsetting the inventory declines we have been seeing both on the LME and in Shanghai (see our table above). Other markets are holding steady--energy prices are slightly higher, while US stocks are called to open flat. Most importantly, the dollar is weaker today, now trading at 1.3240 against the Euro. Setting aside the SRB selling reports for the moment, if copper fails to reverse its recent losses in light of what has been a fairly rather nurturing backdrop, we could be setting the stage for potentially more weakness for metals going into next week.
Later in the day today, banks will get the preliminary results of a government review of their balance sheets, while the Federal Reserve will also release the methodology on how it is examining the banks. As more details are released --or leaked-- in the run-up to the May 4 final announcement, various markets could exhibit considerable volatility. It is worth repeating what we noted in previous commentary, namely, that the government is walking a fine line in its new role as a self-appointed “national bank analyst”, as it must be careful about what it says about the banks and how it says it.
On the US macro front, March durable goods data comes out later today (expected at -1.5%), as does existing home sales (expected at 337,000 units annualized). Yesterday's macro data was relatively poor, but certainly nothing outside of the range of expectations. Weekly initial claims for example, came out at 640,000, in line with estimates, although the continuing claims figure was more troubling, as it continues to ratchet higher. Existing home sales came out at 4.57 million units annualized, only slightly below the 4.65 mln estimate. Finally, the New York Times reported yesterday that the US Treasury is preparing a Chapter 11 bankruptcy filing for Chrysler that could come as soon as next week. Reports have it that Treasury has apparently reached an agreement with the United Auto Workers to protect pensions and retiree health care benefits as a condition of the filing.
Out of the UK, the Daily Telegraph reported today that Moody’s and Standard & Poor’s are both said to be reviewing the U.K.’s AAA credit on concern about the nation’s rising debt burden. Out of South Korea, some good news for a change. It was reported that the economy unexpectedly expanded by +.1% in the first quarter, as increased spending by consumers and the government, plus a pickup in construction spending, both helped prevent another negative quarter of growth.
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COPPER SUPPORT: $4300 / RESISTANCE: $5000
We are at $4359 on copper, up $17 and on our highs for the day. Despite this, the action over the past 24 hours has been disappointing, as prices have not responded to falling stocks, rising US equities markets, and a weaker dollar. This does not necessarily bode well going into next week.
* Japan's output of rolled copper products fell by a record 60% percent in March from a year earlier, data from the Japan Copper and Brass Association showed on Friday. Japan's output of rolled copper products fell to 32,338 tons in March on a seasonally adjusted basis and represents a 7.9% decline from February levels.
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ALUMINUM SUPPORT: $1400 / RESISTANCE: $1600
We are now at $1453 on ali, up $5, with prices holding their gains despite another uptick in LME stocks. Prices still seem to be in the short-term up channel, but the fundamental backdrop does not look that inspiring.
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ZINC SUPPORT: $1400 / RESISTANCE: $1525
We are at $1410 on zinc, down $7. Prices pierced $1400 support earlier today before bouncing off it. Charts show that the short-term up channel is starting to fray, especially if we get two closes below $1400.
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LEAD SUPPORT: $1350 / RESISTANCE: $1650
We are at $1415 on lead, down $45, with the weakness brought on by a surprisingly large 8,000-ton rise in LME stocks overnight. However, prices are still within their upchannel, which does not break until we get below $1350.
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NICKEL SUPPORT: $10800 / RESISTANCE: $13,500
Nickel is at $11,200, down $150, and looking uninspiring on the charts, as the short-term up channel has been broken for some time now.
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TIN SUPPORT: $10200 / RESISTANCE: $12500
We are at $12,410, down $40, very steady There is a good article in today's Wall Street Journal on the soaring cost of tin plate; readers can request the link by sending an e-mail to edwmeir@aol.com
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