Base Metal Prices Fall as US Passes Debt Limit Deal

SHANGHAI, Aug.3 (SMM)--US Senate passed the debt ceiling deal August 2nd by a vote 74-26, which had passed Aug 1st in the House of Representatives. The US President Barack Obama then signed the bill, a signal that the US debt ceiling issue has come to an end. But concerns that the US may experience another economic recession did not ease, which will imperil global economy and financial markets. In this context, the dollar against major currencies trended upward, with the US dollar index rallying to 74-75.

According to the debt ceiling bill, the US will cut deficits by at least USD 2.1 trillion in the next ten years. During the first stage, the debt ceiling will be lifted by USD 900 billion, which will take effect in September the earliest. During the next stage, another USD 1.5 trillion spending-cut plan will be proposed by November 23. The US debt ceiling should be lifted by USD 2.4 trillion during the next ten years if conditions allow. The two-month standoff between Republicans and Democrats in the US has done nothing but caused worries among the country’s global debtors, which is “risking the world economy”. The market believes the debt agreement may not be enough to relieve the US from heavy debt burden. As latest US GDP, July manufacturing data, Purchasing Manager’s Index and personal spending all fell, the market is worrying about a second sliding-down of global economy. Though the top 3 credit rating agencies said they will maintain AAA rating of the US, a downgrade is still possible in the midterm.

Although the Congress passed a bill to avoid a debt default, it failed to improve market sentiment, as US stock markets extended declines after the release of vote results, with the Dow Jones Industrial Average slumping by more than 200 points. Commodity currencies were sold-off, the US dollar index rebounded significantly, and Swiss frans, gold and other safe-haven assets all strengthened, with gold prices hitting a record high USD 1,660/mt. Meanwhile, negative major economic data fueled investors concerns over global economy recession, and weakening major stock markets caused market players to buy risk adverse assets. If the US non-farm employment data and other macro-economic results to be released this week remain weak, base metal prices may be pushed down further.  

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