London 13/04/2012 - The base metals caught a tailwind yesterday which led to strong gains that averaged 1.8 percent. The metals gained upward momentum following worse than expected initial jobless claims that once again prompted talk that the Fed was more likely to do further quantitative easing.

However, overnight it does look as though the market has worked out that poor jobs in the US, given the slowdown in China and a subdued outlook for Europe, is not good for the outlook for metals.

As of 07:10 BST, the metals are down an average of 0.6 percent with copper down 0.7 percent at $8,153, aluminium is down 0.2 percent at $2,104, while zinc is down 0.6 percent at $2,023. Volume has been light with 6,923 lots traded.

Data out in China this morning showed GDP of 8.1 percent, down from 8.9 percent, while fixed asset investment came in as expected at 20.9 percent, although that to was down from 21.5 percent. Industrial production climbed to 11.9 percent up from 11.4 percent and retail sales were up 15.2 percent – so a mixed picture overall, but one that still shows growth.

In Shanghai the June contracts are firmer with average gains of 0.5 percent. Lead and zinc are up 0.8 percent at Rmb 15,740 and Rmb 15,550 respectively, copper is up 0.5 percent at Rmb 58,410 and aluminium is up 0.1 percent at Rmb 16,100.

Spot Changjiang copper is 0.3 percent higher at Rmb 57,850-58,050 and the contango is at around an equivalent of $57/tonne. The LME/Shanghai arb differential is around $290/tonne.

Equities – yesterday the Euro Stoxx 50 and Dow closed up 0.5 percent and 1.4 percent respectively and the stronger tone has flowed through Asia where the Nikkei is up 1.2 percent, the Hang Seng is up 1.8 percent, the MSCI Asia Apex is up 0.3 percent and China’s CSI 300 is up 0.7 percent.

The dollar weakened yesterday with the dollar index dropping to a low of 79.20, but it has since recovered to 79.47. The euro got up to 1.3213, but is last at 1.3164 and sterling is firmer at 1.5942, the aussie is at 1.0385, the yen is last at 81.00 and the yuan is firmer at 6.3012. Gold and silver put in a strong performance yesterday and are now consolidating gains with gold last at $1,674 and silver at $32.30.

There is still a busy economic agenda ahead with Germany CPI, UK PPI, Italian industrial production, US CPI, University of Michigan consumer sentiment and inflation expectations. Plus FOMC Dudley and Fed Chairman Bernanke are talking – see table on right for more details.

As trade in Europe gets underway it looks as though Asia was influenced more by the gains in the US rather than being worried by the weaker Chinese GDP number, but this morning Europe seems to be reacting negatively to the data.

Our view remains the same we expect metal prices to work lower on the back of weakening demand and although the prospect of further QE might provide upside flurries, we expect the downward trends to dominate overall.

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