Base metals gained more than expectation as the Fed declared $1.2 trillion easing propelling the equities markets supporting the gains in metals pack. Though the Greece negotiation and downgrade of credit rating was mostly in focus in the Euro-zone but still the Euro gained 2.23 percent and may continue the trend in the coming week too.
Fundamentally the inventory has witnessed slight drawdown and the cancelled warrants are maintaining at higher levels indicating better spot demand. In the coming week the inventories may continue the trend as global manufacturing and production activity has also been increasing supporting the trend.
The Automobile and aero-space outlook has also been improving supporting price gain of metals like Zinc, Aluminum and Nickel. The Euro-zone may continue to support the gaining spree as the Greece debt negotiation may settle as International Institute of Finance will talk on behalf of private creditors. However since the Asian markets have not yet faced the downgrade of Spain and Italy on Friday night, weak opening may be witnessed on Monday morning.
However as the week unfolds positive data releases from Germany, UK and Euro-zone in the form of consumer confidence, PMI manufacturing and retail sales are mostly expected to be eco-friendly and may continue to support gains.
The Chinese counterparts are also expected to return back after a week long holiday, due to profit booking coupled with weak manufacturing releases may have slight negative impact for base metals, however an easing by the Chinese central bank cannot be ruled out and anticipation of the same may push the prices further northwards.
The bilateral-trade ties between US and China is also affected and US would probably impose higher subsidy to Chinese Steel and Aluminum imports. From the US, the personal income and spending are expected to increase after an increase in GDP. Further the manufacturing indexes are also expected to be supportive for price gain.
The non-farm payrolls are expected to contract with a similar contraction of construction spending and factory orders may have slight negative effect. Therefore amidst all these dynamics we expect base metals to continue the bull rally. Overall we recommend to go for long positions at lower levels as positive equities coupled with positive economic data expectations may support the gains in metals.
MARKET OVERVIEW
Metal sector continued the gaining spree and all base metals closed on the positive side as Fed maintained its lower interest rate stance coupled with $1 trillion easing pushed the equities and also supporting the gains in metals. In India, the gains were limited as the Reserve bank eased the cash reserve ratio by 0.50 percent appreciating the Rupee by 2.02 percent against the USD
Zinc was the top gainer and prices gained 6.81 percent followed by increase in volume and open interest. Though fundamentally Zinc is most weak with cancelled warrants maintaining at only 2.58 percent the price gain was due to better auto-sector outlook coupled with US and Euro-zone recovery
The trade participation has been slight poor compared to past weeks as the volumes have declined, however the open interest has increased at LME indicating that traders are holding position expecting further gains in metals pack
Commodity Futures Trading Commission (CFTC) Report- Copper
The data released by CFTC on last Thursday tells us that market is occupied with nearly equal weights of buyers and sellers; however the sellers are slightly more when compared to buyers indicating that the investors are going for short positions due to moribund forecast from Fed coupled with Greek debt negotiations.
However the metals are expected to continue the gaining spree though the gains may limit due to profit booking as Chinese markets open.
ECONOMIC REVIEW
The week gone by major events like Greek debt talk and FED meeting has taken place. Optimism in Greek debt talk has supported Euro to trade on higher side. Euro gained more than 2 percent against US Dollar in the last week. However, pressure was witnessed in between due to rejection on plan. Besides, Societe Generale, the second largest bank and Credit Agricole the third are the two French banks to have their credit grades cut from A+ to A by S & P after France was stripped of its rating earlier this month.
IMF has cut the global outlook growth for 2012. On the other side, Despite Republican opposition, the Senate on Thursday voted to allow President Barack Obama to increase the debt ceiling by $1.2 trillion, an amount large enough to ensure the federal government can pay its bills through the November elections.
Fed unexpectedly extended its pledge to keep the rate unchanged till 2014 compared to previous target of mid 2013. Thus, spike in dollar index was seen on Thursday. From economic front, most of the economic releases from Eurozone and US were mostly positive. The acceleration in US GDP growth to 2.8% annualized in Q4, from 1.8%, suggests that the recovery is gathering momentum.
Overall, world equity market continues the rally and MXWO index climbed up by more than one percent. Asian equities have performed better than Euro-zone and US equity market. Indian rupee continued to appreciate against US dollar. In the last week, Indian rupee has appreciated by more than 2 percent at 49.31 levels.
ALUMINIUM
Aluminum was the least gainer and prices increased by 2.21 percent at LME followed by decrease in volume and increased open interest, the cancelled warrants have also recorded an increase and is presently maintaining at 19.39 percent
The Government of India is planning to invest $1 trillion in infrastructural development for the 12th five year plan and it may support the gaining spree among base metals including Aluminum and Steel
COPPER
Zambia's Konkola Copper Mines, a unit of London-listed Vedanta Resources Plc, has launched a copper reclamation project that will add 24,000 tones to the company's annual output
Rio Tinto PLC expects to make management changes at Ivanhoe Mines Ltd. after grabbing majority control of the Canadian mining company, and may seek direct ownership in the massive Oyu Tolgoi copper-and-gold project in Mongolia
LME Copper prices has closed higher from the previous week up by +3.78%, last week made a high of $8679 against the low of $8183 and finally closed at $8525 level, which is higher than the previous week.
The principle of Fibonacci retracement states that prices have major resistance is seen at $9130 levels which are 76.4% of the range of 9905-6650. Copper prices may continue their bullish trend but we may expect correction till 8300 levels before its resuming their positive direction.
The chart shows support zone might be seen at $88280levels, which is 50% retracement of the above mentioned range. If breaches this levels than next support may seen at $7890 levels that is 38.2% retracement.
The indicator analysis RSI-14 on a daily chart is trade near 68.37 which is supportive for the copper prices that copper prices will trade higher side for the coming week, buy we may expect prices may suffer profit booking, Going by the above analysis next week copper prices may correct before its going upward direction, traders may use enter at lower levels strategy.
LEAD
Lead prices gained 5.08 percent at LME and cancelled warrants have also increased to 13.98 percent supporting price gain
The volumes and open interest has also increased slightly and the gain in prices may continue as successful Greek negotiation hopes unfolds in the coming week
NICKEL
Nickel prices gained 6.11 percent followed by increase in volumes coupled with inventory and cancelled warrants
Tanzania is expecting to increase its GDP contribution from mining sector from 2.8 percent to 10 percent by increased Nickel mining from its high grade reserves and ores
ZINC
Zinc was the top gainer of the weak and prices increased by 6.81 percent coupled with increased volume and open interest
Better Automobile outlook coupled with increased manufacturing from NAFTA region may continue to support the prices in the coming week
LME zinc future prices last week closed higher up by +6.80%, and made a high of $2220 against the low of $2003 and finally settled at higher at $2150. The principle of Fibonacci retracement states that prices have next resistance is seen at $2340 and $2531 which are 76.4% and 100% of the range of $2531-$1722.
Over all we may expect zinc prices may trade higher for the next week and it may continue their positive direction. The indicator analysis RSI-14 day’s trade at 68.55 and it might be positive for the zinc prices, suggesting that prices have room for further upside.
Going by the above analysis we expect for the next week zinc prices may correct before its resuming its uptrend, traders may enter at lower levels and may be expected its positive direction and recommended buying at lower levels for the coming week.
Courtesy: Karvy Commtrade Ltd.
