Tin tracking towards US$20k ($27k AUD), page-8

METALS MORNING VIEW – Metals bullish for now, but too many loose-ends to be complacent
Posted on March 18, 2016 by Will Adams
The dovish Fed stance has given commodities a boost with the base metals closing up 2.1 percent and precious metals prices closing up 1.3 percent on average yesterday. Zinc led the base metals with a 3.8 percent rise to $1,843, aluminium lagged with a 0.3 percent rise and copper closed up 1.6 percent at $5,068. Gold prices were little changed at $1,258.70, but the more industrial precious metals closed up an average of 1.8 percent.

The stronger tone has flowed through today with the base metals up 0.5 percent, ranged between an unchanged lead and a 1.2 percent gain in nickel – copper is up one percent at $5,121 and volume has been high at 12,223 lots.

The precious metals are up an average of 0.7 percent this morning, led by a 1.3 percent rise in silver to $16.12. The recovery in the industrial precious metals has seen some of the divergence ease with platinum’s discount to gold last at $277 and the gold/silver ratio easing to 78.50.

In Shanghai, the base metals are up across the board with average gains of one percent, ranged quite closely between 0.6 percent for aluminium and tin and 1.5 percent for zinc, with copper up 1.1 percent at Rmb 38,130. For now, LME prices are outpacing SHFE ones. In Changjiang, spot copper is up 1.7, the backwardation is at an equivalent of $22 per tonne, but the LME/Shanghai copper arb ratio has shrunk to 7.45.

In other metals in China, gold and silver are both up 1.6 percent, steel rebar is up 2.1 percent and iron ore prices climbed yesterday to $56.10. Brent crude oil is up 0.3 percent at around $41.50.

Equities – were mixed yesterday, the rebound in the euro seemed to upset European equities with the Euro Stoxx 50 falling 0.6 percent but the Dow closed up 0.9 percent. This morning in Asia, the equity markets are also mixed, the Nikkei is off 1.3 percent, suffering from fresh strength in the yen, but the rest are bullish with the Hang Seng up 0.5 percent, the CSI 300 is up 1.2 percent, the ASX 200 is up 0.3 percent and the Kospi is up 0.2 percent – again the dovish Fed stance seems to be producing a relief rally in emerging markets.

The dollar index dropped yesterday to a fresh multi-month low and has been weak again this morning, last at 94.85, conversely the yen is up at 111.10, having been as strong at 110.67 yesterday. The euro is strong at 1.1298, as are sterling at 1.4447, euro-sterling at 0.7822 and the aussie at 0.7643. Emerging market (EM) currencies are firmer with the yuan at 6.4635, the ringgit and rouble have broken higher, while the other EM currencies we follow are all holding up in high ground and are challenging ceiling levels.

On the economic agenda are German PPI showing deflation of 0.5 percent, later the Bank of England issues its Quarterly Bulletin and US data includes University of Michigan consumer sentiment and inflation expectations. It is also a busy day for FOMC members with speeches from William Dudley, Eric Rosengren and James Bullard – see table below for more details.

With oil, the metals and EM currencies all rallying, risk is on. What is interesting is that running parallel with this risk-on wave is that the safe-haven assets, notably the yen and gold are also strong. We can explain the strength in gold two-ways, first because of the dovish US policy and secondly that the risk-on may be pushing money into commodity baskets – we note that there has even been some buying interest in the white-precious metals ETFs. But if confidence is so strong, why is the yen strong? If anything you would expect a pick-up in confidence would see carry trades being put on that would weaken the yen. Also the Fed became more dovish as they are concerned that global economic and financial developments continue to pose risks – if that is the case why are investors seeking risk? So there are considerable cross currents swirling around the markets as well as some loose-ends.

For now, the momentum is to the upside and we would go with that, but we will not get too comfortable with it.

- See more at: http://www.fastmarkets.com/base-met...-to-be-complacent-110682#sthash.0RRtWvnG.dpuf