The metals ended last Thursday on a high note having seen strong gains on Tuesday, Wednesday and Thursday, but this morning they are down heavily with average losses of 2.4 percent and on strong volume with 10,414 lots traded as of 07:15am BST. Zinc is leading the decline with a 3.5 percent drop, to $2,282 and copper, lead and nickel are down around 2.7 percent at $9,415, $2,529 and $26,150 respectively. The change of tune has come about as concerns grow that the Fed may signal an end to QE2, which would start to reduce liquidity in the system and in turn that could impact the amount of investment money available to banks and institutional investors. Equities – the Dow closed down 0.2 percent yesterday, but Asia has taken the lead with the Nikkei down 1.2 percent, the Hang Seng is off 1 percent, the MSCI Asia Apex is down 0.8 percent and China’s CSI is down 0.6 percent. In Shanghai the July contracts (September for lead) are down an average of 1.1 percent, lead has dropped the most, it is down 1.8 percent to Rmb 17,540, copper is down 1.5 percent at Rmb 69,870, zinc is down 1.1 percent at Rmb 17,285, but aluminium is up 0.2 percent Rmb 16,835. Spot copper in Changjiang is down 1.2 percent at Rmb 70,550-70,800, while the LME/Shanghai arb remains closed at around a negative $350/tonne. So despite copper being below Rmb 70,000 the buying has not started to return yet. The dollar is slightly firmer with the dollar index at 74.02 the low last Wednesday was 73.74. The aussie is strong at 1.0710, the euro is at 1.4570, the pound is at 1.6490 and the yen is strong at 81.65. Gold and silver have retreated from yesterday’s highs of $1,518.45 and $49.81 respectively - they are last at $1,504 and $46.10. The economic agenda is relatively light today with UK industrial orders expectations from the CBI out at 11 am and US house prices, consumer confidence and Richmond manufacturing data out this afternoon. Yesterday, new home sales data in the US beat expectations coming in at 300k against an expected 280k, which built on last week’s good US housing data. However, the markets’ focus is likely to remain on the FOMC statement, which comes out tomorrow. The gap lower this morning on the LME and pull back in bullion does seem to suggest the market is nervous about what the impact the changing trends in monetary policy will have on prices. The lower prices this morning have attracted some bargain hunting, especially in aluminium, so prices are off the overnight lows, but we would not be surprised to see further selling into strength as the market adjusts itself ahead of the FOMC statement tomorrow. Other than for aluminium it would not take much more price weakness to turn the charts bearish, form their current position of consolidation. For copper $9,200 is seen as a likely tipping point.

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