Base metals start off LME Week on a strong footing

Monday, October 12, 2015

Copper, aluminium and zinc managed to hold onto Friday’s gains during early morning trading on Monday, finding firm support around the previous session’s close as upbeat investors reacted positively to the expectation of further output cuts. After Glencore announced on Friday its decision to cut zinc output by 500,000 tpy three month zinc prices on the LME rallied an impressive 10% throughout the day, pushing towards $1,875/tonne at one point before ending the session 7% higher at $1,836/tonne. Similar rallies across the base metals complex were registered and activity early this morning has been unexpectedly upbeat with copper leading the way higher, trading towards $5,340/tonne in what is usually a quiet week for base metals as delegates from around the world gather in London for LME Week.

Further details regarding the Fed’s interest rate outlook were provided over the weekend as Vice Chairman Stanley Fischer signalled that there may be sufficient strength in the US economy to support an interest rates rise this year. At the annual IMF meeting which took place in Lima the outspoken Fed official cautioned that policymakers were paying close attention to any slowing in the labour market as well as exogenous shocks playing out on international markets. It’s been a difficult few months for FOMC members as they find themselves split between the need for ongoing clarity and managing the risks inherent with an impending increase in interest rates.

Recent volatility reminds us of June 2013 where global asset prices exhibited significant “taper tantrum” as the Fed reined in its asset purchase programme. While the unemployment rate in the US holds near 5.1% Mr Fischer went further to state that it doesn’t reflect the “additional forms of slack in the labour market.” Today’s release of the monthly budget statement for September will provide investors with additional insight into the health of the US economy with consensus estimates of a $95bn surplus which would mark a sharp swing from August’s $64.42bn deficit.

The current volatile market outlook while bad news for most investors has been good for the gold bugs. The precious metal extended gains during the early hours of Monday morning, trading towards $1,165/oz as investors took refuge in the perceived safe haven. Spot prices have rallied 4.8% month-to-date and reached a fresh seven week high as investors rebalanced their portfolios and reduced their exposure to risky assets. SPDR Gold Trust ETF holdings held near a two and a half month high last week at 687.2 tonnes.

LME 3-M copper prices build on Friday's gains

LMCADS03 Comdty LME COPPER 3 2015 10 12 08 20 13

Spot gold prices rally on market jitters as SPDR holdings rise

GDTRGOLD Index SPDR Gold Trust 2015 10 12 08 06 31

Events for today

0230

CN

Sep

Money Supply (10/10/2015)

1830

US

Sep

Fed Budget

More from: Kash Kamal