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LME METALS round-up: 11 January

The markets, including the metal markets, had an “interesting” time during the holiday period and look likely to continue to do so. “Interesting” can be a mixed blessing, but traders generally like the volatility that comes with it because it offers opportunities for profit - and loss.

One think tank suggested that the US could reach its borrowing limit by the middle of February

The main interest was whether the US economy would dive over the fiscal cliff. The House of Representatives managed enough of a deal on 2 January to avoid serious trouble. But the current measures apply mainly to the tax rises that were due to come in. The issue of associated spending cuts has been put off for just two months, which means it will come to a head at about the same time as the separate, but still vital, question of the government’s debt ceiling.

One US think tank, the Bipartisan Policy Center, has suggested that the government could reach its legal borrowing limit by the middle of February. So the markets seem set to have more “interesting” times ahead.

In the interim, the markets can watch what the European Central Bank (ECB) and the Federal Reserve do to encourage growth.

Some analysts are arguing that the ECB should cut its rates to counter the sluggish eurozone performance. Meanwhile, the release of the minutes of the December meeting of the Fed’s open market committee spooked the markets since some members started questioning the current policy of open-handed asset purchasing (to inject money into the US economy). At least some of this money has been finding its way into metal purchases.

There were also a few economic indicators to take note of.

The purchasing managers’ index (PMI) for manufacturing in China, compiled by Markit Economics for the bank HSBC, rose to 51.5 in December from 50.5 in November. It was the best reading since May 2011, and suggested slightly improving conditions.

The PMI for US manufacturing published by the Institute for Supply Management rose to 50.7% in December from 49.5% in November, pointing to expansion in manufacturing for the third time in seven months.

But the eurozone remained mired in recession, commented Markit Economics, as its final figure for the manufacturing PMI for the zone in December was 46.1, down from the preliminary figure of 46.3.

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