Metals Remain Weak as Capital Outflow Accelerates-Shanghai Metals Market

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Metals Remain Weak as Capital Outflow Accelerates

SMM Insight 10:38:20AM May 29, 2012 Source:SMM

SHANGHAI, May 29 (SMM) -- Recent Greek political turmoil increased the country’s risk of exiting the euro zone, leading to a rapid fall in metals prices and recording lows for the year. Taking into account continuous turbulence in the financial markets, risk aversion in the market is heating up. Due to the high degree of uncertainty in markets and monetary policies, capital continued to retreat from metals markets. Base metals will continue to be sold as risk assets and metals prices should remain weak.

Latest opinion polls show, before the onset of the June election, Greece's conservative New Democratic Party gets the most support, paving the way for the new Democratic Party and the Socialist Movement Party (Pasok) to form a coalition Government, which led to stronger investor risk appetite. Metals rebounded yesterday. But Spain frustrated investors. Recently Spain’s 10-year bond yields rose to a high of 6.47% in 2012. Spain against Germany 10-year bond yields surged to the highest 507.3 since the introduction of the euro. This reflects markets are still nerved by Spain. Standard & Poor's downgraded May 25 Spanish banks’ ratings. Banco Popular Espanol SA’s long-short term counterparty credit rating was downgraded to BB+ from BBB-, Banca Civica SA’s to BB from BB+ and Bankinter SA’s to BB+ from BBB-. Increased pressure on Spanish banks and government bonds dragged down LME metals after their higher openings.

Data showed accelerated capital outflow from the financial markets. EPFR data on May 25th showed net redemption of USD 7.4 billion in global stocks funds for the week ending May 23rd. The United States and emerging markets reported net redemption of three successive weeks. Global debt funds and money market funds reported net inflows of USD 3.5 billion and 11.5 billion, respectively. As European decision makers lack firm and resolute measures to respond to the current crisis, investors reduced investment positions on risky assets, resulting in more than USD 1 billion of net redemption in Europe and emerging markets stock funds and commodities and energy sector funds. CFTC COMEX copper futures positions report for the week ending May 25 showed long fund positions were 40,184 lots, down 1,673 lots from the previous week; short positions were 50,282 lots, up 4,567 lots from the previous week; fund net shorts were 10,098 lots, up 6,240 lots. Commercial short positions were 60,264 lots, up 7,010 lots.

The current US dollar index remains high and holds steady at the 82 mark. Now across global markets, apart from disorder in the euro zone, all other countries also face economic difficulties.  The US dollar will remain the first haven choice for investors and the possibility for metals to restart a rally is still low.

Key Words:  base metals   Greece   euro zone   US dollar 

Metals Remain Weak as Capital Outflow Accelerates

SMM Insight 10:38:20AM May 29, 2012 Source:SMM

SHANGHAI, May 29 (SMM) -- Recent Greek political turmoil increased the country’s risk of exiting the euro zone, leading to a rapid fall in metals prices and recording lows for the year. Taking into account continuous turbulence in the financial markets, risk aversion in the market is heating up. Due to the high degree of uncertainty in markets and monetary policies, capital continued to retreat from metals markets. Base metals will continue to be sold as risk assets and metals prices should remain weak.

Latest opinion polls show, before the onset of the June election, Greece's conservative New Democratic Party gets the most support, paving the way for the new Democratic Party and the Socialist Movement Party (Pasok) to form a coalition Government, which led to stronger investor risk appetite. Metals rebounded yesterday. But Spain frustrated investors. Recently Spain’s 10-year bond yields rose to a high of 6.47% in 2012. Spain against Germany 10-year bond yields surged to the highest 507.3 since the introduction of the euro. This reflects markets are still nerved by Spain. Standard & Poor's downgraded May 25 Spanish banks’ ratings. Banco Popular Espanol SA’s long-short term counterparty credit rating was downgraded to BB+ from BBB-, Banca Civica SA’s to BB from BB+ and Bankinter SA’s to BB+ from BBB-. Increased pressure on Spanish banks and government bonds dragged down LME metals after their higher openings.

Data showed accelerated capital outflow from the financial markets. EPFR data on May 25th showed net redemption of USD 7.4 billion in global stocks funds for the week ending May 23rd. The United States and emerging markets reported net redemption of three successive weeks. Global debt funds and money market funds reported net inflows of USD 3.5 billion and 11.5 billion, respectively. As European decision makers lack firm and resolute measures to respond to the current crisis, investors reduced investment positions on risky assets, resulting in more than USD 1 billion of net redemption in Europe and emerging markets stock funds and commodities and energy sector funds. CFTC COMEX copper futures positions report for the week ending May 25 showed long fund positions were 40,184 lots, down 1,673 lots from the previous week; short positions were 50,282 lots, up 4,567 lots from the previous week; fund net shorts were 10,098 lots, up 6,240 lots. Commercial short positions were 60,264 lots, up 7,010 lots.

The current US dollar index remains high and holds steady at the 82 mark. Now across global markets, apart from disorder in the euro zone, all other countries also face economic difficulties.  The US dollar will remain the first haven choice for investors and the possibility for metals to restart a rally is still low.

Key Words:  base metals   Greece   euro zone   US dollar