IG Markets - Morning Thoughts

IG Markets - Morning Thoughts

The gyrations in global metals have not slowed down. Yesterday, copper, gold and silver all shed massive daily percentages, with copper off as much as 3.21%, gold down 2.1%, and silver shed 3% in Asian trade. This occurred as stop losses and bear bets continued to heap pressure on the precious and industrial metals.

The movements saw BHP falling through the $31.45 low of July 2012 and all the way down to the May 9 low of $30.92. It appears to be heading to GFC lows of $27.10 - a very scary thought for a stock that carries 9% market weight.

However, several demand factors kicked in overnight. The US reported that it is currently seeing the high copper premiums rising further on perceptions that reduced output from the likes of Rio Tinto is fuelling speculation that supply is limited. With copper having fallen through the magic US$7000 a tonne this week, investors cashed in on that discrepancy which saw copper jump 3.15% overnight.

Gold is in a similar vein. Futures climbed and the spot price had its longest rally in four weeks as reports emerged that demand for the metal is ramping up due to its plunge in price. This is not surprising; at the end of last week I did state that if you could turn all the gold in the world into one block it would only be 19 metres squared (not much really) - supply and demand rules will take over.

Support for gold is bound to come, and it seems it has already with jewellery sales skyrocketing in China and India - both of which are the largest consumer groups of the precious metal. The China Gold Association and the Indian Gems & Jewellery Trade Federation have seen demand climb to year highs during Monday and Tuesday’s trading session.

Some are calling the movement in gold as the bubble that finally burst, and I can understand this call. However, be careful here as gold demand is building and this pressure will overwhelm the current momentum if it continues to fall. We also cannot forget that fact at all three major central banks are trying to inflate their respective economies - gold and inflation go hand in hand.

It has been a big week for the currencies as well. The metal moves saw the flight to and out of safe havens. USD/JPY dropped almost 1% at the start of the week as investors headed for the (safe- haven) hills. This was coupled with the fact that US and Europe gave Japan a slight touch-up ahead of the G-20 meeting starting today by ‘reminding Japan of its pledge not to drive down its currency’.

All ears will be on the language used over the weekend, as fears the globe is slowing again are flaring up. I note Christine Lagarde has tweeted this sentence this morning ‘a 3-speed global economy is not enough, we need a full-speed global economy and this requires action on all policy fronts.’ If she can drive home this point, Monday’s trade might be interesting.

Ahead of the open, we are calling the ASX 200 down two points to 4922 (-0.04%). With the industrial metals such as copper, nickel and aluminium all picking up the pieces from the carnage of the past week, and precious metals doing the same, materials plays should move higher to close the week. BHP’s ADR is suggesting the stock will add 41 cents to be up 1.33% to $31.10, however this is far from recovering the losses of the last three days. I note a few major market commenters have changed their views on BHP this week: one is out and one made the ‘gut wrenching’ call of in. Whatever your view, BHP will survive all of this. It has too many quality grade-one assets for it to fall into the abyss; there will be a point where it will be a screaming buy no matter what the sentiment, and that is my view and that point is not very far off either.

It is the end of the week so be careful with the light trade today; remember that several major macro-events are occurring over the weekend, including the G-20 and IMF meeting. Here’s hoping both can raise sentiment and can start the final full trading week of April on a high.
Market Price at 6:00am AEST Change Since Australian Market Close Percentage Change
AUD/USD 1.0298 -0.0007 -0.07%
ASX (cash) 4922 -2 -0.04%
US DOW (cash) 14480 -142 -0.97%
US S&P (cash) 1539.1 -11.3 -0.73%
UK FTSE (cash) 6234 -16 -0.26%
German DAX (cash) 7456 -61 -0.82%
Japan 225 (cash) 13268 47 0.36%
Rio Tinto Plc (London) 28.78 0.24 0.83%
BHP Billiton Plc (London) 17.72 -0.07 -0.41%
BHP Billiton Ltd. ADR (US) (AUD) 31.10 0.41 1.33%
US Light Crude Oil (May) 88.64 1.97 2.28%
Gold (spot) 1387.90 13.2 0.96%
Aluminium (London) 1914 38 2.00%
Copper (London) 7080 216 3.15%
Nickel (London) 15571 296 1.94%
Zinc (London) 2016 24 1.22%
Iron Ore 138.60 -0.7 -0.50%

IG Markets provides round-the-clock CFD trading on currencies, indices and commodities. The levels quoted in this email are the latest tradeable price for each market. The net change for each market is referenced from the corresponding tradeable level at yesterday’s close of the ASX. These levels are specifically tailored for the Australian trader and take into account the 24hr nature of global markets.

Please contact IG Markets if you require market commentary or the latest dealing price.

www.igmarkets.com

ends

© Scoop Media