Shanghai Metals Rally on Increased Market Buying

SHANGHAI, Oct. 17 (SMM) -- With improved investor risk appetite and possibly easing liquidity following a slowing China’s Consumer Price Index (CPI), the rebound in Shanghai metals is expected to last this week.

According to China’s National Bureau of Statistics, China’s September CPI rose by 6.1% YoY, down slightly MoM, while the Producer Price Index was up 6.5% YoY. SMM believes that China’s CPI has already stepped on a downward track, whereas with a limited falling pace. SMM also expects domestic CPI to drop slightly again in October, but will stay above 5% this year. The 0.1 percentage point drop in China’s CPI confirmed that the index is moving down, thereby significantly easing pressures to hike interest rates and reserve requirement ratio. This has also created space for a controlled ease in China’s monetary policies.

Optimism that a plan to contain European debt crisis will emerge soon helped boost market sentiment. Dow Jones Industrial Average extended a 3-week rally in recent six months, with Dow Jones Industrial Average and Nasdaq Composite Index returning to above levels seen in late 2010. Dow Jones Industrial Average closed at 11,644.49 points last week, up 4.9% and rising for the third consecutive week. Standard and Poor's 500 Index advanced by 6% to 1,224.58 points, while Nasdaq Composite Index gained 7.6% to 2,667.85 points. Continuous rises in US stocks lent some support to metals prices.    

Consensus that China’s CPI has entered the downward track will likely allow more funds to enter capital markets, which will in turn help capital markets extend the rally. Combined with signs of improving external environment, SMM expects metals prices to rise further in the near term.