Isra-Mart srl: BASE METALS - European Opening View - Copper and tin lead the rebound

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Base metals saw another day of gains on Thursday with prices up an average of 3.2 percent as prices accelerated higher into the close. Tin led the advance with a gain of 6.9 percent to $22,398, while copper was up 4.5 percent at $7,228. Sentiment was strong across the board with equities firmer and the dollar weaker.

Given some of the percent drops of late a 3.2 percent rally looks encouraging, but whether it is the start of a more meaningful rebound remains to be seen. Much will depend on how the market closes today and then how China reopens Monday having been out for a week. Interestingly prices are now higher than they were when China closed for the holiday.

This morning the metals are up by an average of 0.9 percent – copper is in front with a again of 1.7 percent to $7,351, with the rest are up between 0.7 percent and 0.9 percent. Volumes are also twice the level of those at this time yesterday, see table on right for more details.

Equities – the Dow closed up 1.7 percent yesterday and Asia has followed on with the Nikkei up 1 percent, Hang Seng is up 2.9 percent and the MSCI Asia Apex is up 2.5 percent. This shows some confidence is returning across the broad market.

In line with a more risk-on climate the dollar is under pressure with the dollar index at 78.53, the high was 79.84 on Tuesday. The euro is firmer at 1.3445, the pound is at 1.5480, the aussie is at 0.9810, the yen is at 76.62 and the yuan is at 6.3750. Gold and silver continue to gain ground, no doubt helped by the weaker dollar and less fear that the markets are going to see more distress selling.

The economic agenda is busy today, Japan’s leading indicators came in as expected, but slightly down on the month, there is a host of European data out including German industrial production, see table on right for more details, but the focus will be on the US employment data.

With rebounds underway across the metals it looks as though there is more room on the upside for the rebounds to travel. During LME week we felt most people were not optimistic, but having already seen hefty price falls it maybe that the feeling is a lot of the bad news is already in the price – at least for now.

In addition with the ECB and European governments getting more active again in trying to tackle the debt crisis, sentiment has improved and that is leading to some bargain hunting. Although we feel there is room for a bounce, we maintain our view that the down trends will continue over the medium term and that these rallies are likely to attract selling before too long. Indeed looking at the charts it is only copper and tin that are accelerating to the upside, but these are the two metals with relatively better fundamentals.