BASE AND PRECIOUS METALS – European Morning View – Metals well placed to test higher

London 22/01/2013 - The metals put in a fairly quiet day yesterday, which considering the US was closed is not so surprising. Base metals closed down an average of 0.3 percent, with nickel down the most with a 0.7 percent fall to $17,430, copper was down 0.4 percent to $8,055, while tin managed to hold in positive territory, closing at $25,044. Precious metals faired better with a 0.3 percent average gain, gold was up 0.4 percent at $1,689.40, while palladium was off 0.6 percent at $714.00 as profit-taking seems to have capped the upside for now. This morning the metals are up across the board with average gains of around 0.4 percent, copper leads the way with a 0.9 percent gain to $8,125.50, while aluminium is the laggard as it is up just $1 at $2,046. On the precious metals gold, silver and palladium are up 0.3 percent with gold at $1,694.10, while platinum is up 0.2 percent at $1,680.25. Volumes on the LME as of 07:04 GMT were 5,618 lots, slightly below last week’s average for this time of day at 6,295 lots. The Bank of Japan has doubled its inflation target to two percent, but has put back the start of open-ended asset purchases until the start of next year. It said it will then buy $13 trillion yen ($146 billion) in assets per month. The delay has strengthened the yen slightly, but with a higher inflation target now and the likelihood of hefty QE in 2014, (which we would have thought might be brought forward in need be), the markets might well have something to look forward to - it looks as though it might be a case of Japan QE taking over from US QE. In Shanghai the base metals are up an average of 0.5 percent with copper leading the way with a 0.9 percent gain to Rmb 58,770, zinc is up 0.7 percent at Rmb 15,500, lead is up 0.4 percent at Rmb 15,360, while aluminium is off 0.1 percent at Rmb 15,270. Rebar is off 0.3 percent at Rmb 3,905, while gold is off 0.1 percent at Rmb 341.20/g. Spot copper in Changjiang is up 0.4 percent at Rmb 57,850-58,050, so remains in contango with the futures, while the LME/Shanghai arb window remains shut with the ratio at 7.24. Equities – the Euro Stoxx 50 closed up 0.6 percent yesterday, the Dow was closed and in Asia this morning the Nikkei has dipped, last off 0.4 percent as the BoJ has said the start of open-ended QE will not start until 2014, which has lifted the yen slightly. The Hang Seng is up 0.2 percent, the MSCI Asia Apex is up 0.4 percent, while China’s CSI 300 is down 0.5 percent. Currencies – the dollar has turned lower with the dollar index at 79.75, down from a recent high of 80.19, the euro is upbeat at 1.3358, the recent high being 1.3404, while the yen is firmer at 89.00 up from a low of 90.21, as is the aussie at 1.0555, while sterling is weaker at 1.5850 as is the yuan at 6.2211. The economic agenda is busy today, it includes: German and EU ZEW economic sentiment, Spanish house prices, UK industrial order expectations and in the US existing home sales and the Richmond manufacturing index. ECB Draghi is speaking at 6pm GMT – see table attached for more details. Our view remains friendly towards the base and precious metals, we feel the outlooks for China, the US and now possibly Japan, look brighter and that should help underpin firmer metal prices. That said, the US debt ceiling issue may well throw cold water on the US prospects and that could have far reaching implications and lead to some austerity in the US later in the year. But assuming US policymakers do not scupper the recovery, we feel the global outlook is brighter and even in Europe the end of destocking may well see apparent demand pick-up. For precious metals, we feel supply worries in South Africa will underpin the PGMs, while competitive currency devaluation may well fuel further monetarisation of gold and silver.