MI Comment: Month-end springs surprise

After a dull morning session across the LME on Thursday, the afternoon suddenly sprang alive, though not entirely in a way that locals had anticipated. Commentators seemed rather flummoxed and clutched at straws in explaining why/how the markets had pulled lower mid-afternoon, only to spring back in the closing stages, several ending at the day's highs. Aluminium had spent much of the premarket in a dreary $10-range and was picking up as the rings got underway, though from an initial high of 2785 it was dumped back to 2745 in the pm sessions. The CTA community was considered by fund watchers to be running short of aluminium, copper and zinc, so some month-end window-dressing by them had been expected in place of the fresh allocations that often accompany the start of a new month. Instead, it looked like the markets' bigger fish, the macroeconomic investment fraternity, had the final word with the light metal leaping from 2745 to 2790 at the bell. Trading in the aftermarket finished at 2798.

Nearby spreads were unchanged, though renewed interest in the forwards saw 2009 narrow by up to $3.00/mth, while 2010 tightened by a similar margin. One party remained at 30-40% in the LME's warrant banding report.

On Friday morning it looked like the close above the pivotal 100-day moving average put a spring back in aluminium's step with the market trading easily to highs of 2825 in the first hour of trading in London. SHFE stocks had fallen close to 5,000t, though more tellingly so had copper inventory at the Shanghai exchange. The red metal too had extended its late gains of yesterday, though at time of writing the pair were slipping back with aluminium's volumes yet to breach 2,000 lots; rather low given the price move. Again, it was the options market's delta hedgers who found themselves running for cover on the upside, with next Wednesday's June declarations very much on the front burner.

A breach of local resistance c. 2860 could extend the run towards the 2920 area, wrote Cliff Green Consultancy, though the trading strategists remained on the sidelines for as long as prices were trapped in a broad sideways pattern. Last at 2800.