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Metals pushed higher yesterday in what has now become a familiar pattern in a number of commodity markets, namely, gradually rising prices as trading shifts from Asian to European to US theatres. Today’s action is notably different in that we have started off sharply higher almost from the outset of Asian trading thanks to a surging Euro. The currency has found a new lease on life on account of a Federal Reserve’s policy statement out yesterday. In it, the central bank said it would keep interest rates low for far longer than previously expected (to 2014), while setting for the first time, a long-term inflation target of 2%. This is providing a “green light” for bond bulls to drive rates lower still considering that against such a target, the US 30-year bond is yielding 3%.

The Fed also released individual policy makers’ forecasts for the federal funds rate; these show that Fed governors expect rates to rise by 2014, an indirect admission that growth will be sluggish until then. Indeed, should the economy turn south before that time, the Fed said it is prepared to provide “further monetary accommodation if employment is not making sufficient progress towards our assessment of its maximum level, or if inflation shows signs of moving further below its mandate-consistent rate” (i.e., if deflation sets in).

The Fed statement seems to have robbed the greenback of any impending interest rate “prop” down the road, one that could have started surfacing by this time next year if the Fed’s original 2013 target on cheap money was adhered to. Instead, with things now pushed into 2014, the attack on the dollar is on and commodities are following higher in its wake.

The Fed statement is also significant in that it encourages the vast amounts of money now sloshing around the system to find –and stick to — higher yielding investments in the months ahead.
Commodities will be a natural beneficiary in such a scenario, although there is always the danger that should the chase get too intense, higher prices will eventually sow the seeds of their own destruction. No where is this more true than in the case of energy, where another spiral could lead to higher interest rates and slower growth.

With respect to short-term issues that are of more pressing concern to investors right now, Greece has resumed negotiations with private creditors in Athens today, but as of yet, there are no major announcements. IMF Managing Director Christine Lagarde again put pressure on the ECB, saying that it and other public creditors must need to accept losses to match those taken by the private sector, something that incredibly, they are still reluctant to do. The level of interest rates on the new Greek bonds has also been another sticking point, with the IMF and Germany insisting it must be low enough to ensure that Greece’s debt-service payments will be on a sustainable track. A 4% offer was rejected as being too high earlier this week, and Greek media reports that 3.7% is now being considered.

Although we think the Greek situation will likely be settled one way or another in the days ahead, potentially helping the commodity complex even more, we think the more important issues remain unresolved. These include the urgent need to send clear signals with respect to policy initiatives, beefing up the financial firepower of the stabilization funds, and addressing how exactly the authorities intend to make Europe grow again.

There were no major macro releases out of the US on Wednesday apart from weekly initial claims, which came out in line with estimates (+375,000). Later today, we get December durable goods readings (expected at +2%), December new home sales (expected at 322,000), and December leading economic indicators (expected up .7%).

In other markets, energy prices are up by about $1.50/brl and US stocks are expected to open modestly higher.

In company news, Bloomberg reports that Noble Resources will acquire Delivery Network Singapore for an undisclosed sum. The acquisition gives Noble control of an LME warehouse in Illinois and Michigan, as well as Delivery Network’s license to list new operations with the LME.
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COPPER SUPPORT: $8000 RESISTANCE: $8500

We are at $8539 on copper, up $155, and looking very solid on the charts. Next resistance, should $8500 get taken out on a two-day closing basis, would be $8900. It will be interesting to see what the Chinese do once they come back next week to these sharply higher prices. LME stocks were off another 1875 tons today.

* Bloomberg reports that AngloAmerican posted a rise in quarterly output for its key commodities, with copper up sharply thanks to a ramp-up at the company’s Los Bronces mine. While copper production has missed expectations for much of 2011, the company posted fourth-quarter output of 170,000 tonnes, 10% higher year-on-year, and 22% higher than the third quarter. Anglo has been battling Codelco in Chile’s courts over an option that would allow it take a stake in several Chilean properties, including Los Bronces, into which the miner has already sunk $2.8 billion. It provided no update on the dispute on Thursday.
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ALUMINUM SUPPORT: $2100 / RESISTANCE: $2300

Ali is now at $2267, up $15, with a high of $2283 posted earlier in the day.
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ZINC SUPPORT: $2000 / RESISTANCE: $2270

Zinc is at $2185, up $10; next resistance is at $2270.
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LEAD SUPPORT: $2100 / RESISTANCE: $2340

Lead is at $2295, up $13.
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NICKEL SUPPORT: $18,500 / RESISTANCE: $22,000

Nickel is at $21,400, up $475, and looking very firm today.
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TIN SUPPORT: $21,000 / RESISTANCE: $22,640

Tin is at $23,500, up $1050 and easily the best performer in the group today.
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STEEL (3-Months)

LME 3-month billets are trading at $520.

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