Metals and Markets in the Morning
On Tuesday morning base metals are trading up by 0.2 to 1.2 percent at LME electronic platform. Asian equities are also trading up by 0.4 to 1.6 percent as early morning the Chinese non-manufacturing PMI increased more than expectation supporting gains in riskier assets coupled with gains in western markets.
As expected, the Euro-Summit after effects has not completely faded and instead of that, it increased investor optimism and risk appetite. Further, slower pace of economic activity with weak labor and manufacturing also increased speculation that some forceful quantitative easing might be ahead boosting financial assets.
Fundamentally, the demand supply scenario continues to support downside, however increased tax and implementation of new avenues like the latest introduction of MRRT (Mineral Resource Rent Tax) by Australian parliament has not only invaded in the pockets of miners but may also increase the cost of production supporting gains in metals. Higher cost would likely increase physical premiums and supported by higher boost from the central banks may continue to support gains in base metals.
From the economic data front, the UK PMI construction is likely to remain weak after slowing housing index, but increased easing by Bank of England may restrict much downside while the consumer credit is likely to decline and may limit gains in base metals. The Euro-Zone producer prices are likely to contract further, may likely provide more room for the ECB for increased easing, and may support gains in metals pack. The US factory orders are likely to remain weak after slower ISM numbers but the US markets would be closed tomorrow and anticipation of lowering interest rate by the ECB might also be witnessed supporting a bull run for base metals.
Therefore, amidst strong equities and optimistic expectation of increased easing may support gains in metals and initiating long might be the prudent strategy for the day.
After a resilient move yesterday, gold futures prices have changed a little on the back of weak manufacturing releases globally. With the Euro zone unemployment level staying at a record high and moderate inflation, the ECB is expected to cut the interest rate by 25bps in its Thursday meeting. The Euro is therefore holding firm against the dollar and supporting bullions.
Reports today may indicate the US factory orders had declined after the ISM data came below 50, indicating severe weakness of the US economy. The Euro zone PPI is likely to cool which would be the mainstream focus for the ECB to ease policy rates later this week.
Amid this background, the US treasury yields tend to the lowest level of 1.5535. Indirectly this indicates search for safety investments.
Gold, shares a negative correlation with treasury yields, we can expect money flowing into the metal as a search for safe haven especially before the US midweek holiday. Expect gold to remain strong for the through the holiday in the US as investors will begin to position themselves ahead of Friday’s Nonfarm payroll release and the ECB and BoE decisions.
Silver futures prices are also quoting green on the back of strong Asian equities and the Euro would have supported the metal. Silver therefore may be demanded as haven along with gold as well as an increase in pricing for industrial metals.
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