Metals Fall on Sluggish Macro Economy-Shanghai Metals Market

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Metals Fall on Sluggish Macro Economy

SMM Insight 11:40:29AM May 30, 2012 Source:SMM

SHANGHAI, May 30 (SMM) -- In May, base metals fell in a row, led by LME and Shanghai metals markets. Global macro-economic sluggishness is the main reason. Metals prices fell quickly under pressures from multiple sides, and with the absence of effective monetary policy or demand improvement, are expected to remain weak.

The European debt crisis has been reignited recently. Pressure from Greece’s Eurozone exit broke out. With a rising government debt to GDP ratio, higher yields on long-term government bonds increased financing costs, which led directly to worsening of the Greek debt crisis and threats stability of the euro. EU countries, led by Germany, require the Greek Government to perform austerity; otherwise they will stop economic aid. However, Greece failed to form a new Government and domestic opposition to austerity started to dominate, this has made investors worry that Greece’s euro exit will become a reality, which will have greater consequences in global financial markets. Concerns over Spain begin to emerge, data shows Spain is now facing rising bond yields. A US rating agency again downgraded Spain’s debt rating to BB- while maintaining a negative outlook.

Slowing economic growth in China, a representative of the emerging economies, is also an obstacle facing markets. The HSBC China manufacturing purchasing managers' index (PMI) Released on May 24 shows the preliminary reading dropped to 48.7 in May, reporting contraction for the seventh month in a row, due to deteriorating exports. Last month’s HSBC Manufacturing PMI is 49.3. The previous low point is 47.7 and was recorded in November last year. From the breakdown, new export orders rose to 50.2 last month, new orders and employment data showed contraction, input prices and output prices indexes also declined. May manufacturing activities once again weakened, reflecting the deteriorating export sector.

SMM believes that in the context of a deteriorating macro economy, capitals begin to leave risk assets and switch to the relative safe dollar, leading to a continuous rise of the dollar index, which in turn resulted in falling commodities prices. But in view of a series of unsatisfactory economic date recently released by China and the United States, the introduction of new monetary easing in the future may begin, which will cause metal prices to rebound.

Key Words:  base metals   LME   Shanghai 

Metals Fall on Sluggish Macro Economy

SMM Insight 11:40:29AM May 30, 2012 Source:SMM

SHANGHAI, May 30 (SMM) -- In May, base metals fell in a row, led by LME and Shanghai metals markets. Global macro-economic sluggishness is the main reason. Metals prices fell quickly under pressures from multiple sides, and with the absence of effective monetary policy or demand improvement, are expected to remain weak.

The European debt crisis has been reignited recently. Pressure from Greece’s Eurozone exit broke out. With a rising government debt to GDP ratio, higher yields on long-term government bonds increased financing costs, which led directly to worsening of the Greek debt crisis and threats stability of the euro. EU countries, led by Germany, require the Greek Government to perform austerity; otherwise they will stop economic aid. However, Greece failed to form a new Government and domestic opposition to austerity started to dominate, this has made investors worry that Greece’s euro exit will become a reality, which will have greater consequences in global financial markets. Concerns over Spain begin to emerge, data shows Spain is now facing rising bond yields. A US rating agency again downgraded Spain’s debt rating to BB- while maintaining a negative outlook.

Slowing economic growth in China, a representative of the emerging economies, is also an obstacle facing markets. The HSBC China manufacturing purchasing managers' index (PMI) Released on May 24 shows the preliminary reading dropped to 48.7 in May, reporting contraction for the seventh month in a row, due to deteriorating exports. Last month’s HSBC Manufacturing PMI is 49.3. The previous low point is 47.7 and was recorded in November last year. From the breakdown, new export orders rose to 50.2 last month, new orders and employment data showed contraction, input prices and output prices indexes also declined. May manufacturing activities once again weakened, reflecting the deteriorating export sector.

SMM believes that in the context of a deteriorating macro economy, capitals begin to leave risk assets and switch to the relative safe dollar, leading to a continuous rise of the dollar index, which in turn resulted in falling commodities prices. But in view of a series of unsatisfactory economic date recently released by China and the United States, the introduction of new monetary easing in the future may begin, which will cause metal prices to rebound.

Key Words:  base metals   LME   Shanghai