Metals in the Morning June 13, 2012

This morning base metals are trading slightly positive by 0.09 to 0.2 percent at LME electronic platform. The Asian equities are trading mixed while early morning machine orders from Japan increased more than expectation supporting gains in base metals.

 Nevertheless, a rise in global equity markets offset concerns about the Euro-zone debt crisis, where Spanish and Italian bond yields hit a record high yesterday. Yields have surged to 6.93 percent the most since 1997 and made Fitch ratings to downgrade 18 Spanish banks. Spain may fail to meet the deficit target of 5.3 percent of GDP even after 45 billion Euros austerity cut and may likely keep the shared currency under pressure for the day.

Further, the Greek elections over the weekend, may determine whether Greece stays in the euro zone, and is expected to keep weighing on prices as investors worry about how further chaos in the single currency region will impact global demand for metals. From the economic data front, the German consumer prices index is likely to remain unchanged after lower Euro-zone inflation.

While the Euro-zone industrial production may further decline weakening metals in the afternoon session. Even the US releases in the form of advanced retail sales and business inventory is likely to remain weak and may continue to weaken metals pack for the day. The mortgage applications is likely to remain weak after a recent Fed survey highlighted that the middle-class in the US has lost the most during the financial crisis. However, the producer price index is likely to fall after cheaper imports and commodity prices and may provide slight cushion to Dollar index .

Concerns highlighting Euro-area may provide investors to take heed on Dollars Index and may continue to weaken metals for the day. Overall, we expect amidst weak Euro and rising borrowing costs coupled with negative economic expectations, base metals may remain weak during the day and initiating shorts might be the ideal strategy.

Gold futures rallied above $1,600 per ounce, as a weaker dollar, debt crisis in Europe and talk of further monetary easing drew investors towards the safe-haven asset i.e. precious metals.

Gold holdings of SPDR gold trust, the largest ETF backed by the precious metal, declined to 1,274.37 tons, as on June 12. Silver holdings of iShares silver trust, the largest ETF backed by the metal, increased to 9,696.23 tons, as on June 12.

The dollar index, which measures the US unit against a basket of six major, edged down to 82.386, compared with 82.529 in Monday’s late North American trading.

Spain’s 10-year bond yields hit their highest in the euro-era on Tuesday, edging closer to the 7% danger level and leaving investors worried about Madrid’s access to the bond market. Fitch Ratings downgraded 18 Spanish banks on Tuesday, less than a week after it cut the country’s sovereign debt rating,  underscoring the potential for lenders’ assets to deteriorate further.

Copper futures closed slightly lower, as investor remained focused on Europe’s sovereign-debt problems despite dovish comments from Federal Reserve Bank of Chicago President Charles Evans. Copper futures for July delivery closed down by 0.2 at $3.3355 per pound on the COMEX of the New York Mercantile Exchange.

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