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US consumer sentiment improved in early August to its highest level in three months, while a gauge of future US economic activity also improved in July. The data pushed equity markets higher. The euro, however, fell to a session low versus the dollar putting some pressure on metals prices. "There has been some increased optimism in the market on the back of the data but it is likely to be short-lived," said Ross Strachan, economist at Capital Economics.
"Investors are looking for signs of significant loosening of monetary policy by the major economies of the world. When that looks more likely to occur you could see copper rising." The market had earlier been encouraged by Merkel voicing her support for European Central Bank President Mario Draghi's crisis-fighting strategy on Thursday. She pressed her European partners to move swiftly towards a closer integration of fiscal policies, saying time was running short.
"Investors were particularly impressed with a statement put out by German Chancellor Angela Merkel. In normal market conditions, such utterances would typically not cause much of a stir, but given the dearth of news and how thin trading has become, traders are grasping at whatever comes their way," INTL FCStone analyst Edward Meir said in a note. The latest data shows inventories of copper in warehouses monitored by the LME have declined to their lowest levels since early June in a sign that demand is picking up. Stocks have fallen by around 20,000 tonnes from summer highs to 234,550 tonnes.
"Copper inventory levels on the LME are extremely low, and the market is vulnerable to a squeeze," said Guy Wolf, a macro strategist at Marex Spectron. In China, the world's top metals consumer, recent comments from the government have stirred hopes for more policy action to stimulate the economy. The country's trade outlook for 2012 has worsened as problems deepen in trading partner Europe and foreign direct investment growth slows.
"The big talking point in markets this morning is China and whether it will announce some form of policy easing this evening," ANZ said in a research note. "Chinese media is speculating that we may see more than the 50 (basis) point cut in reserve ratio requirements." China's smelters are lobbying the government to revive a state-run scheme to stockpile industrial metals, which would support prices and possibly lead to a surge in imports, industry sources have said.
LME aluminium closed at $1,858 a tonne, bouncing from a three-year low of $1,827.25 hit on Thursday. Traders attributed the volatility to the metal's weak fundamentals. LME zinc closed at $1,797 a tonne, bouncing off a 1-1/2 month low hit in the previous session, when it closed at $1,784.5. Tin ended at $18,495 from $18,105 at the close on Thursday, while lead closed at $1,895 from $1,847, and nickel ended at $15,630 from $15,525.
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