Metals ended on a mixed note this week, but this was still better then where the day started, when prices were uniformly lower. A ferocious rally in both energy and in the US equity markets yesterday had surprisingly little impact on metals, as we suspect the complex was still troubled by the lingering impact of the poor macro headlines coming out of China earlier in the day.
The two other major market complexes - energy and equities - both seemed to be responding to different factors yesterday. Energy markets finished sharply higher ahead of the OPEC meeting on Sunday, where sentiment is now arguably shifting towards a possibility that the cartel may go ahead with a modest cut. Equity markets, on the other hand, rallied on the back of better-than-expected February retail sales numbers, an in-line weekly initial claims reading, and on glimmers of hope that the situation with a number of financial institutions could be stabilizing.
Worries about GE also subsided, as rating agencies reiterated a stable outlook on the company despite downgrading the overall group from its AAA status. And finally, General Motors issued a statement saying that it would not need an extra $2 billion of government money for the current month, which although mere pocket change these days, nevertheless buoyed sentiment in equities late in the day.
Whereas metals did not put on an aggressive upside show yesterday, the complex is catching up today. Some of the advance is being spurred by talk from China’s Premier Wen Jiabao, who suggested that extra stimulus spending could be in the cards in order to hit China's 8% growth target this year. The Premier also called on Washington to ease worries about the safety of its vast U.S. assets, and reaffirmed China's commitment to keeping the Yuan steady.
Also helping sentiment, has been the across-the-board decline we are seeing in copper stocks. LME holdings fell by 6,700 tons a day, bringing total inventories below the psychologically significant 500,000-ton mark, while out of Shanghai, copper (and aluminum) stocks fell roughly by 10% from the week prior. (See our table on page 1). Aluminum stocks on the LME, however, seemed to have resumed their steep climb after moderating somewhat over the last two days; they were up a whopping 75,000 tons overnight, but despite this, ali prices are still putting on a good show today, hovering just above $1370 resistance.
In other markets, energy prices are up slightly again after yesterday’s sharp advance, and ahead of the OPEC meeting over the weekend. We still believe that OPEC may put through a modest cut when it meets on Sunday, but a round of profit-taking in energy could set in on Monday once the results of the meeting are discounted. The dollar is not doing much against the Euro today after weakening over the past few days, and is now trading at 1.29.
US stock futures are called higher once again this morning, with the Dow expected to open up by about 70 points.
In other news, to the Russian metals industry’s dismay, Prime Minster Putin rejected a proposal for the creation of a state metal reserve fund that would keep production going while maintaining employment, similar to what the Chinese seem to be currently doing through their stockpiling program. The government will, however, support the industry by continuing to place orders on behalf of its rail, military and aviation industries. Separately, Russia’s Ministry of Industry and Trade predicts the downturn in global demand may result in the loss of some 100,000 jobs in the ferrous and non-ferrous metals industry.
On the US macro front, we get Michigan consumer sentiment readings out of the US later today, (expected at 55) as well as trade data for the month of January (expected at - $38 billion). Out of Europe, retail sales fell for an eighth month in January, as the global slump prompted households to curtail spending; sales in the Euro region fell 2.2% from a year after a 2.4% decline in December.
Finally, Chile’s central bank slashed its benchmark interest rate by 2.5% yesterday, cutting much more than expected. A 5-point rate reduction in the past two months is the sharpest in some 15 years. The bank’s policy committee is moving quickly to stimulate growth after the economy shrank in January with a contraction also expected for February.
Courtesy: MF Global
