By Leon Westgate
The base metals are all softer this morning, with fairly uninspiring Chinese economic data combing with a stronger dollar to see the metals come under pressure during overnight trade.
With the market focused on this afternoons FOMC rate decision and statement (due out at 19.15 BST), prices will likely drift sideways during the afternoon, looking towards technical signals and the US equity markets for direction.
The metals ended Monday on a rather mixed note, with aluminium and copper both coming under heavy selling pressure towards the close, in spite of a decent performance from the US equity markets. In contrast, nickel managed to continue pushing higher, although lead, zinc and tin faded gradually during Monday afternoon as momentum petered out.
Overall, the market seems to have reached a fork in the road and is unsure which way to go. Short term, several of the metals appear to be over-extended price-wise and are attracting profit taking activity and the addition of fresh, albeit perhaps fairly weak, short positions.
However, against what generally appears to be an improving economic picture and low interest rate environment, any significant pullback in prices will also likely attract substantial buying interest. Consequently, the market appears to have reverted back to the indecision that characterised it from mid June through much of July. As a result, technical signals look set to be increasingly important in terms of dictating short-term price direction.
Copper came under pressure overnight, with Monday afternoon’s sell-off continuing into Tuesday morning. Prices have stabilized ahead of the afternoon session, with decent volumes also building up. The latest Chinese import figures showed an 4.5% m-o-m increase in unwrought copper and products to 342.9 kt in July, the first increase in four months.
Scarp imports also increased strongly, climbing 8.6% m-o-m to 380.0 kt. The increase was largely anticipated, with an opening in the arbitrage window in the previous month facilitating the imports. The numbers nevertheless paint a bullish picture in terms of the country’s demand for the metal, and it will be particularly interesting to see if that trend is maintained during August and September.
