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Metal Prices Rally on Eased Credit Tightening Policy
Sep 8,2011 11:59CST
smm insight
Any negative news will again cool down market sentiment, and metal prices will also likely fluctuate in the short term.

SHANGHAI, Sept. 8 (SMM) -- As investors took heart from the German ruling that staved off an immediate worsening of the euro zone crisis and looked towards an announcement later from US President Barack Obama on a new job-creation package, US stocks made strong gains on September 7th. In addition, tightening cash flows in China may be eased. As a result, SHFE base metal prices rallied and successfully returned above the 10-day moving average.

China’s National Bureau of Statistics (NBS) on September 9th will announce the country’s Consumer Price Index (CPI) for August, and institutions expected the CPI data to increase between 5.9%-6.2% YoY, down from July’s peak. As China’s August CPI growth slowed down, the country’s inflation began to cool, providing room for the country to reduce banks’ deposit reserve ratio to bolster the economy. Liquidity in domestic markets is severely tight at present, which has spread to Chinese stock and property markets, and banks have also begun to raise the down payment and interest rates of personal loans, with the news of liquidity chains broken   in small and medium-sized banks heard frequently. If negative factors outside China drag down the country’s economic performance in the forthcoming months, China’s central bank will probably downgrade banks’ deposit reserve ratio, so as to inject liquidity to the markets. Whether or not there will be a turning point for China’s monetary policy depends on China’s central bank’s comprehensive judgments on the effects of previous tight monetary measures as well as market liquidity. There is little possibility to reduce the deposit reserve ratio right away, but markets didn’t deny the possibility completely.    

The announcement of new stimulus plan aimed at creating jobs by US President Obama and the results of September’s interest rates by European and England’s central bank is the focus of markets this week. Obama will release a new plan to stimulate economy and increase jobs on September 8, which is the most urgent for him as the general election for 2012 nears as US job data for August was very disappointing, and with the unemployment rate unchanged at 9.1%. Obama’s plan to be released today may involve in cutting worker’s salary taxes, increasing investment on infrastructure construction, directly aiding the state government, prolonging the salary tax cut or elimination as well as jobless compensation. The European countries have not reached an agreement on Greek debt issue, and economic data in these countries was mixed. As economic situations in the Euro zone and England as well as European debt crisis are getting worse, European and England’s central banks will not raise interest rates at the monetary policy meeting on August 8.

If markets accept US President Barack Obama’s new economic stimulus and job creation package, financial markets will likely rise further, which will also boost metal markets. However, China’s and European Central Bank’s monetary policy stance may tend to be moderate, and any negative news will again cool down market sentiment, and metal prices will also likely fluctuate in the short term.

base metal

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