Financial market research and analysis

The European markets opened flat with a sense of caution. The UK miners pulled the FTSE up higher in London. Glencore (4.5%), Anglo American (3.7%) and Antofagasta (3%) lead gains as copper futures are better bid on potential Chinese intervention to halt the slide in metal prices. China is now starting an investigation against malicious metal short-selling, while nickel producers will meet to discuss a potential cut in production; in reaction to falling demand. On the contrary, copper producers are looking to increase their output, hoping that more cost efficient mines could be profitable even if the copper stabilises at about $2/lb. With the lack of a pick-up in demand, the latter strategy may prove to be harmful for the future revenue margins, especially for highly-indebted companies, such as Glencore. In this context, the recovery in the miners is brittle. Investors should keep in mind the possibility of a squeeze in copper prices and a renewed sell-off could again hit mining stocks.

BHP is down at the open as the UN investigates the disaster in Samarco, Brazil. The UN says that the companies (with Vale) have not done enough to prevent the disaster.

This being said, the wider picture remains broadly negative and a setback to $2/lb could well be around the corner not only on demand-supply concerns but on the heel of the strengthening US dollar, which expected to weigh on the entire commodity complex.

Rio Tinto estimated ‘two more years of pain’ in the copper market, while adding that copper should recover faster, ‘in two or three years, we can see the light at the end of the tunnel as far as copper is concerned.’


Thanksgiving holiday in the US

In the US, the durable goods orders probably surged 3.0% in October (vs1.7% exp. & -1.2% last) according to the preliminary data; capital goods orders nondefense (ex-aircraft & parts) rose 1.3%m/m. The US dollar index stepped above the 100 handle as Fed hawks dominate the game. There is nothing to derail the Fed from taking the first step in December; the market gives a 72% chance for the latter.

At the US is celebrating Thanksgiving, the US session will be quiet.