The base metals muddled through yesterday with average gains of just 0.2 percent, with nickel dropping the most, it was down 1.6 percent, while zinc climbed 1.5 percent, tin was 1 percent higher and lead was 0.6 percent higher. Copper and aluminium ended slightly down. This morning the metals are up by an average of 0.4 percent, copper is up 0.5 percent at $9,727, aluminium is 0.2 percent firmer at $2,499, while tin is the only metal in negative territory, it is down 0.1 percent. Volumes remain light at 2,986 lots, with 1,505 lots of copper traded. Given the deteriorating economic and financial background it is surprising the industrial metals are holding up as well as they are, especially as the dollar is generally firmer and equities suffered yesterday. The Dow closed down 0.8 percent yesterday and this morning the Nikkei is down 0.8 percent, the Hang Seng is down 0.7 percent, the MSCI Asia Apex is down 0.5 percent and China’s CSI 300 index is down 0.9 percent. The dollar is edging higher as it appears the EU debt situation is more pressing than the US debt ceiling stalemate. The dollar index is at 75.43 and is rebounding off last week’s pull back to 74.65. The index is still above the long term down trend line, but is also considerably below the high from last week at 76.72. The euro is at 1.4090, the aussie is weaker at 1.6070 as concerns have risen that global growth is slowing again, sterling is at 1.6070, while the yen remains strong at 79.10. Gold and silver remain upward bound at $1,604.90 and $40.50. Bullion is clearly showing a pick-up in safe-haven interest as there are more than enough reasons to be concerned about the euro, the dollar and equities. In Shanghai the October contracts are up an average of 0.6 percent, zinc is up 1.1 percent at Rmb 18,650, lead is up 0.6 percent at Rmb 17,760, copper is up 0.4 percent at Rmb 72,390 and aluminium is up 0.3 percent at Rmb 17,640. With lead and zinc prices higher than aluminium in Shanghai it does look as though the speculative activity has picked up again. Indeed another indication of this is the fact that future prices for copper are up today while physical prices down. Spot copper in Changjiang is off 0.1 percent at Rmb 71,700-71,950 and the LME/Shanghai copper arb has weakened to $210//tonne - so remains closed. Economic data out today includes ZEW economic sentiment in Germany and the EU and in the US building permits and housing starts. Plus as we are in earnings season the markets can also be influenced by earnings and today some of the big US banks are reporting. Generally the metals look robust and as we have said above we are surprised how robust they are. However, with the market concerned about sovereign debt in the EU and USA and therefore by association the paper money behind these economies, perhaps investors view is that it is better to own something with intrinsic value . However if the sovereign debt does turn a full circle and come back to hit the private sector again ie the banks, then you can understand why equities are nervous. The danger is if sentiment does turn bearish then all asset classed are likely to be hit – including the metals. Overall we still see these firmer trends in the metals as likely to lead to better selling opportunities and would watch the charts careful for signs that the rallies are faltering.

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