Base metals gained the most for the week gone by as the Fed increased the US debt ceiling from $15.194 trillion to $16.394 trillion followed by reduced bonds yield of France and Spain after the downgrade strengthening ‘Euro’ and supporting global equities. Lead was the top gainer and prices came up by 8.58 percent, followed by Nickel by 4.34 percent.
On the same note the coming week may also continue to remain volatile for the metals pack. The Equities have also performed better and the treasury yields has reduced indicating that investors are slowly moving away from safe heavens. Fundamentally the cancelled warrants are at an all time high for Copper and Aluminum however for Nickel and Zinc the warrants are comparatively lower.
The inventories have also witnessed slight stockpiling indicating the fall in spot demand, followed by weaker volumes and interest. In the coming week the markets will keenly watch the FOMC meeting where the Fed will be injecting $1 trillion easing as soon as this month coupled with buyback of mortgaged backed securities to reduce the interest rate further imbibing confidence within the economy. This easing may propel investor confidence and continue the gain in metals pack.
The euro may continue to trade higher as the IMF may increase the crisis fund by another $500 billion apart from the $1 trillion raised last week. However the Deficit control mechanism set up by German Chancellor Merkel targeting 0.5% of GDP may have slight negative impact on Euro and base metals. From the economic data update the US GDP is expected to be handy as easing coupled with declining claims and better labor sector may continue the economic development.
The trade deficit of Japan may narrow followed by better PMI and IFO numbers from Germany and Euro-zone may continue the gaining spree. Overall we expect the metals to continue the gaining spree ahead of the US easing coupled with IMF intervention in raising funds. However as the Chinese markets will remain close due to Lunar New Year the gains may get limited.
MARKET OVERVIEW
Base metals gained the most in the week gone by as the European nations namely France and Spain had a successful bond auction after the downgrade strengthening the “Euro” currency propelling confidence followed by signs of monetary easing of $1 trillion by Fed and possibility of buy-back of mortgaged backed securities to reduce the interest rate to near zero propelled metal prices.
Lead was the top gainer and the prices increased by 8.58 percent at LME; however the gains were limited to 4.08 percent due to rupee appreciation, followed by Nickel by 4.64 percent at LME. The open interest for the same has increased supporting the gains.
The trade participation has declined when compared to the past weeks and the volumes and open interest have also reduced for base metals. The volumes have decreased as investors are preferring to rather wait and watch due to US and Euro-zone developments.
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 credit downgrade of Euro nations followed by contraction in Asia. However due to the decrease in trade participation coupled with decrease in jobless claims in US, gains are expected as buying may be witnessed in the week ahead.
ECONOMIC REVIEW
Week ahead, market will be closely eyeing FOMC meet. Fed is likely to step in with $1 trillion easing as soon as this month. Also, the central bank may bind to buy the mortgage backed securities with an objective to drive down the interest rate even further from the current record low level to spur confidence into the economy.
The handsome economic releases for the US for last couple of months are likely to reflect in the Q4 GDP data with its component, namely personal consumption may increase. Jobless claims has already fallen to four years low and is likely to remain at a lower level as labor sector is showing improvement for quite a few time.
From the Euro zone and Germany PMI numbers are expected to remain slightly strong which may support the Euro. The International Monetary Fund’s move to a likely push for another $500 billion in further lending resources has helped lift the euro. But, the deficit control treaty set by Merkel, ruled a correction mechanism which will be triggered automatically in case of significant deviation from a target deficit of 0.5% of GDP may restrict gain in Euro.
Overall, week ahead most of the US releases are expected to remain positive for the economy; while market will be eyeing the FOMC meet keenly. An expectation of another easing may keep the market buoyed while any update from the 17-bloc Euro nations should be notable. We therefore expect another volatile market in the next week with heighten optimism of the Fed outcome for the next stimuli.
ALUMINIUM
Aluminum prices continued to gain consecutively and came up by 3.36 percent supported by stronger warrants maintaining above 17 percent
Presently most of the Smelters in North America and Europe are witnessing constrained production due to obsolete technology and high energy prices shifting the production hub to China and Asian nations indicating change in supply trend and supporting price gains
COPPER
Copper prices also gained consecutively for the week and increased by 2.75 percent at LME. The cancelled warrants are also maintaining above 19 percent supporting the gains
Chinese demand ahead of the New year was comparatively less and the inventory at Shanghai warehouses increased by 14.44 percent indicating slow economic developments from the region increasing speculation of further easing
LME Copper prices has closed higher from the previous week last week made a high of $8428 against the low of $7909 and finally closed at $8220 level, which is higher than the previous week. The principle of Fibonacci retracement states that prices have major resistance is seen at trend line resistance which is around $8670, if breach this levels, which is 76.4% retracement of the range of $9304-$6635 levels.
For the next week we expect prices may trade in the range of $8680 to 7790 levels. The chart shows support zone might be seen at $8100levels, which has support of 8 days EMA, if breaches this levels than next support may seen at $7870 levels that is 21 days EMA.
The indicator analysis RSI-14 on a daily chart is trade near 63.56 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 trade in the range.
LEAD
Lead was the top performer of the week and prices increased by 8.58 percent at LME, followed by 4.08 percent gain at MCX
The cancelled warrants have increased to 12.42 percent indicating better spot demand. The Euro has contributed much gain as the strengthening of Euro has improved the future outlook
Last week, LME Lead future prices ended higher up by +8.78%, and made a high of $2193 against the low of $2002 and finally settled at higher at $2184.
The principle of Fibonacci retracement states that prices has next resistance is seen at $2270 and $2390 levels which are 50% and 61.8% of the range of $2773-$1770. Last week Lead prices have given trend line breakout and prices will trade higher for the next week and it may continue their positive direction.
The indicator analysis RSI-14 days trade at 65.46 and it might be positive for the Lead prices also, suggesting that prices have room for further upside. Going by the above analysis we expect for the next week traders may enter at lower levels and may be expected its positive direction and recommended buying at lower levels for the coming week.
NICKEL
Nickel cancelled warrants continued to reduced but the prices continued north wards and gained by 4.34 percent at LME and 1.89 percent at MCX
The gain in metal prices was due to increased open interest indicating that traders are holding positions expecting bullish future trend. The gains may continue as the easing from Fed may support the bullish trend
ZINC
Zinc followed other base metals and prices increased 2.70 percent at LME and it came up slightly by 0.10 percent at MCX
Fundamentally Zinc was the weakest among all as the cancelled warrants were maintaining 1percent but has improved in the last trading session and are presently at 2.66 percent indicating improved demand
Courtesy: Karvy Commtrade Ltd.
