Newsletter 19th of July

Newsletter 19th of July

We are seeing testing, and almost historic times for the world economy at the moment with two of the largest currencies in the USD and Euro in all sorts of trouble. With the continuing Greek debt crisis and the untested waters that the US economy are currently in, I find it surprising that there is any confidence in the market at the moment.


I read in an article last week that Obama spoke about what would happen if the US Government were no longer able to write cheques. As there is no precedence of this ever having happened, it is impossible to predict the repercussions of such an event. The following article notes that the Obama Administration is looking to INCREASE its $14.3 TRILLION dollar borrowing limit! INCREASE! Surely that would be akin to having financial difficulties at home and suggesting you borrow enough money to buy another house to get yourself out of debt. And this from the world’s largest economy?


Meanwhile on our shores the polled electorate seems fed up with a Government that seems to lack any positive direction and seems out of touch with the Australian people.


Somehow, even given all of the above, scrap metal prices remain firm?


Please see the following article for your perusal;


DJ BASE METALS: LME Metals Close Mostly Higher, But Pullback Seen By Rhiannon Hoyle Of DOW JONES NEWSWIRES


Base metals on the London Metal Exchange closed mostly higher but largely in range Monday as investors awaited fresh news on the euro-zone debt crisis and U.S. debt negotiations.


Traders say market focus this week will remain on the situation in Europe, after Friday’s bank stress tests did little to boost confidence in the system’s ability to withstand a sovereign default. U.S. debt-ceiling talks will also be in the spotlight, with few signs of progress at the weekend in relation to increasing the nation’s $14.3 trillion borrowing limit.


It is expected the general malaise will weigh on metal prices in the sessions ahead, forcing a further pullback across the complex. Copper and other base metals are sensitive to economic news as they are widely used by industry—so any suggestions of a decline in economic activity encourages speculation of a potential fall in demand. They are also considered higher risk assets, like equities and the euro, and subsequently tend to be sold off in favor of refuge assets, like the Swiss franc and gold, in times of economic uncertainty.


Technical indicators and currency moves, in particular the director of eurodollar, should play a key role as well, a trader said. Any rise in the U.S. dollar against the euro–which has struggled amid concerns over the debt crisis–often caps or drives down the price of the metals, which are dollar-denominated and are therefore more expensive for buyers outside of the U.S. when the greenback rises.


In other metals, three-month zinc outperformed, closing the day up 2.4% at $2,431/ton. Three-month lead was up 0.8% at $2,730/ton, while three-month aluminum closed the session at $2,495/ton, just $2 on Friday’s close.


While investors in the aluminum market have this year been largely focused on the rise in global production, energy cost inflation and delays to withdrawing material from LME warehouses, “the quite stunningly positive quality of aluminum demand data [should be] an extremely significant factor for the outlook,” Barclays Capital analyst Nicholas Snowdon said in a report.


He said a 9% rise in global consumption year-to-date kept the market to only a mild deficit in the first half of the year, and noted that even though demand improvements in Asia have been strong, demand indicators for North America and Europe, particularly for semifinished aluminum products, “are equally impressive.”


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