Macquarie Metals Report at close of business on Thursday, 2 October 2008

Commentary
Precious Metals
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Commentary

• US Dollar hitting one year high
• US factory orders fall 4%, autos dip
• ECB holds rates
• Oil falls towards $94
• Gold tumbles 2.7%
• Commodity and equity markets trade heavily as economic data ( bailout or no bailout ) shows theUS is a slowing economy. US stocks down 3-4%. Euro drops to 1.3747 on a dovish appraisal of the Eurozone from Trichet. Aud again sold heavily, lows of 0.7698. Aud/Jpy to 3 year lows. Soft commodities falling dramatically. CRB Index finishing at its lowest point in nearly a year.

§         Asian currency and metals markets spent most of the morning waiting on the results of the Senate vote. Once passed, the markets remained unsure how to react so chopped around nervously for the session. Dow futures were sold but this was ignored by the gold market. FX markets chose to keep the pressure on the Euro with growth concerns largely cited as the reasons.

§         Gold traded a relatively tight range for the London session, following the highs and lows of the Euro but without clear direction.

§         ECB left rates on hold, 0.00% of market participants were surprised by that decision.

§         NY sold gold from the open in what appeared to be a premeditated move in search for stops under 860. ECB Trichet jumped on the wires for the post ECB rate decision press conference and immediately spoke a markedly different tune from last time. Gone was the hawkish talk on inflation, replaced with warnings of growing risks to the downside as far as growth was concerned. This saw the Euro trigger stops under 1.3860 (the level some perceived a double bottom) and quickly trading under the figure.

§         Gold declined at a slower rate tracing crude's steps lower over the afternoon before triggering a second stop loss run under 845.00. The market largely ignored worse than expected US weekly jobless claims and US factory orders.

§         Crude traded down to USD 94, the base complex collapsed and gold touched 830.00. The Euro eventually managing to climb back above 1.38 and thus gold managed to claw some ground back towards the 840 level.

§         Under 825 gold's recent bull run (and safe haven status) will come under serious questioning. The breaking of this level may result in a swift move lower as the remaining longs scramble for the exit.   

§         There was respite for copper on senate vote on US bailout however the 0.7% bounce was somewhat brief. 

§         Copper hovered around US$6200 throughout the morning, the afternoon saw the red metal lose over $300 smashing though $6000 and leading other bases down.  Losses were likely to be a result of hedge fund unwinding from what can only be seen as very bearish market in the near term.  Copper forwards surprisingly not moving despite losses in the 3M.  

§         News from the US car industry seemed to be the nail in the coffin for any technical supports at $2375 as Aluminium tumbled over 4%. 

§         Zinc was also down 5%

§         As London opened Usd/Yen dropped 60 points to Y105.23, bigger losses on Yen crosses was equally shared. Aud/Yen lost 150 points to Y82.05, Kiwi/Yen 120 points to sub Y70, and Euro/Yen 180 points to Y146.00 - levels last seen in August 2006.

§         Euro lost nearly 100 points to 1 year lows of 1.3855, with technical damage done on the break of the 1.3880 fibo support along the way.  Aud/Usd fell 120 points to 0.7785, accelerating on the break of 0.7850, to hit its lowest level since August 2007. 

§         With downside stops done, the market began to eye off stops higher in the Aud and Euro as well.  It took a few hours, but more Aud stops were done over the next few hours as Aud ran up 100 points to 0.7888 highs, taking Aud/Yen up 100 points to Y83 levels. Euro recovered to 1.3930 levels, only just failing to get said stops. 

§         US Weekly Jobless Claims on the rise again, this week up 1k. Continued Claims up another 48k. Credit markets in pain. The Three month Dollar Libor/OIS spread at 260.7bps against Wednesday’s 245.25. Some improve in the overnight spreads.

§         ECB leave rates on hold at 4.25%, as widely expected. Trichet talks extensively on the intensification of the market turmoil. He notes the latest data confirms weakening GDP growth and weakening economies. Inflation risks have diminished. His tone unabashedly dovish, not unsurprising given the current unfolding scenarios. He admits that the board did consider cutting rates. They “remain very observant.”

§         Euro heads further south. Soon a big figure lower, as he continues his talk, under 1.3770. Aud down with it, under 78 cents.

§         U.S Factory Orders for August down 4%, far worse than -2.5% expectations and the +0.7% number in July. Durable Orders revised down to -4.8%. Factory Orders ex-transportation down 3.3%. And Nondefense Cap Orders ex-aircraft revised down further to -2.4%.

§         For yet another night, the Aud receives a bashing on the London fix. Aud eventually down to 0.7698. The continued downside momentum of the equity markets and the weight of the Aud/Jpy, exacerbating the move. Nzd trades down to 66 cents, Nzd/Jpy seen under Y69.30.

§         Major Wall Street Indices showing 3 to 4% losses. U.S Treasury prices well higher, Yields falling 19bps on 2y and 18bps on 5y.

§         Murmurs out of the U.S House of Representatives suggest that the “sweeteners” seem to be having a less than overwhelming effect on the members. Many still finding the $700bln indigestible.

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