Base metals pushed rapidly lower this morning. The sell-off was broad-based across all base metals, precious metals and energy, and took place amid decent volumes for base metals. There is growing risk aversion in markets as investors contemplate the Dubai World credit freeze.
EM credit spreads have widened — indicative of investors growing more concerned about credit conditions globally. The euro has weakened against the dollar. Europe has far greater exposure to the UAE than the US. With gold falling from $1,190 to $1,138 in hours, base metals followed.
However, things have stabilised, and metals are trading well off their lows. Copper has fallen from $6,870 to a low of $6,620. But it has bounced back already, now trading well above $6,700 again. Shanghai warehouse data showed copper stocks fell 6,128 tonnes during the week.
This was partly offset by a rise of 3,000mt in LME warehouse stock. While copper is staging a recovery from the intra-day lows this morning, we expect it to struggle to make up lost ground. Risk aversion abides, and the futures market signals that US equities will open lower today.
This could dampen buying appetite. Aluminum fell, in tandem with copper, touching $1,950. However, the metal has since bounced back to $1,990. But we see aluminium as a laggard today, not only because copper is likely to struggle, but also because crude oil has fallen below the $75 resistance level. It is going to be very difficult for crude to rally above this level under current market conditions.
Shanghai aluminium inventories have risen only 100 tonnes during the week, while LME inventories are down 2,350 tonnes this morning.
The rest of the complex might look to copper today. Zinc is trading just below $2,190. Shanghai stocks of the metal have risen 2.2%, to 166,816 tonnes during the week. Lead has fallen a massive $200 since this morning, to $2,145. However, it is now back at $2,250.
