Macquarie Metals Report at close of business on Tuesday , 6 May 2008

Commentary
Precious Metals
Base Metals
Currencies
Interest Rates
Gold and Silver Forwards
Gold USD ATM Option Vols
Latest Economic Data
Terms and Conditions

Commentary

Metals

• Asia opening in thin conditions given the Japanese holiday and immediately looking to threaten 875 with Crude pushing to new highs above 120.20 early. Gold running into decent offers at 875 and eventually pulling back quickly to 871.50 area over the morning. From here light HK buying kept the market supported throughout the day as the market moved back above 874 over lunch. Market then choppy for most of the afternoon before a good round of fund buying swept the market late in the Asian session. Gold traded from 873 to 878 as we moved into the London session, and this despite a falling Euro.
• Gold continued to edge higher in the London session, with the Euro recovering slightly from the late Asia sell off. HK names good sellers at 880.
• NY took gold lower first to 872.30 before finding bids as the Euro and Crude staged a rally. The slow grind higher picked up some pace when oil went for a run and gold climbed quickly to 880.00. As oil rallied over $2, gold made its way to 883 highs and found decent bids under 880 for some time. Market then finally giving way as profit taking emerged towards the end of the session.
• Market running into the 883 resistance level yesterday, but failing to set the world alight despite a surging Crude. Gold still a bit lost on its identity here, and unable to decide whether to follow the inflation story, Crude, or dollar strength. For now, we look to a strong Crude and commodity complex in general to lay its support to the yellow metal. And if Euro can manage to remain resilient and rally from here, gold should find friends again. 870 support here today, with 885 light resistance and a topside bias.
• Base metals remained largely muted on Tuesday despite the volatility in comex copper on Monday. Copper immediately offered on the Asia open, with dealers looking to take advantage of the gap higher in copper, as well as news that Codelco subcontractors had agreed to end their 20 day strike. Copper down to 8500 and oscillated around this level for most part of the Asian and London sessions.
• Zinc was the standout metal for the complex on Tuesday as shorts become increasingly nervous having had very little value to the downside here. The green metal continues to remain well bid on dips towards 2200 and with long term support at 2150 and a very short market, the green metal continues to remain a value buy at these levels. 2320 resistance now.

FX and General

• Offshore markets took a more Aud positive view than Asia had of the RBA's decision to keep rates on hold . Aud squeezed 35 points to 0.9472, firmed on the crosses, with Aud/Euro to highs near 0.6120, Aud/Sterling above 48p, while Aud/Yen neared Y99.40 .
• Aud's performance more impressive in the face of these USD gains.  Euro hardest hit, taking out stops sub 1.5500 to slide to a low of 1.5452 . Usd/Yen also rallied to highs of Y105.13 , while Sterling lost 40 points to lose its grip on the 1.97 handle.
• The USD was buoyed by UBS' Q1 loss, the announcement of another 5,500 job losses, the exit from the US municipals business, and the sale of its subprime holdings to Blackrock [for USD 22 bio].
• UK Services PMI disappoints, down 1.7 points to 50.4, well short of 51.6 forecasts, and to the lowest level since March 2003. Costs still of concern, with input prices to 67.3 and the highest level since records began in 1996.  Still, Sterling fell another 60 points after the numbers to hit session lows of 1.9635 . Aud/Sterling to fresh decade highs of 0.4822 .
• Eurozone Services PMI is confirmed at 51.9, a fraction ahead of March. Germany the standout, French growth wanes, Italy contracts for the 5th straight month, while Spain and Ireland contract at record rates. Little reaction to this, but another high PPI from the Eurozone, up 0.7% m/m and 5.7% y/y [from 5.4% y/y in Feb], and record highs in oil [at USD 120.93/bbl] saw USD give back all of its gains.
• A $2.2 bln loss by Fannie Mae in Q1 compounds the USD's problems. Euro proceeds to rally nearly 100 points to 1.5547 in the lead up to NY open. Usd/Yen dribbled off 70 points to Y104.37 lows . Aud's out-performance evaporated. Aud/Usd down to 0.9432, Aud/Yen fell 80 points to Y98.60 levels, and 30-40 points given back against Euro and Sterling.
• The USD finally finds a bottom in the NY morning as stocks reverse their earlier sell-off. Rumours Yahoo and Microsoft will resume merger talks again, the relaxation of some regulatory requirements on Fannie Mae and energy and raw material stocks grinding higher (as oil is again on the ascend, to $122 a barrel) all do their bit to lift the bourses. Not before Euro trades to session highs of 1.5593, Usd/Jpy plumbs the depths of Y104 and Aud punches through stops to 0.9498 highs.
• With a lack of data in the US to give a definitive flavour to the session, upon Europe's departure, the NY market settles in to very quiet trading. The Aud remains bid near 95cents. Usd/Jpy scrambles back to mid-Y104 levels . Euro gives back much of its session gains, back under 1.5540.
• US Treasuries mixed throughout the day eyeing the ebb and flow of equity markets.
• RBNZ Financial Stability Report released as we write this report - RBNZ says risks of sharper slowdown if global crisis spreads and Kiwi high with risk of sharp fall. Initial reaction kiwi moving 15/20 pts lower.

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Gold & Silver Forwards

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