SHANGHAI, Jun. 8 (SMM) – On Thursday, the People's Bank of China (PBOC) announced unexpectedly that it would lower the benchmark one-year deposit and lending rate by 25 basis points for financial institutions, effective from June 8, and also cut other deposit and lending interest rates and the deposit and lending interest rate for personal housing accumulation fund. In the meantime, the PBOC announced it would raise financial institutions' upper limit of the floating range for the deposit rate 1.1 times the benchmark rate, and lower limit of the floating range for the lending rate 0.8 times the benchmark rate, also effective from June 8. Following PBOC's move in interest rate cut, the financial market trended higher, and US equity markets started significantly higher as markets became positive towards copper demand prospects. Later, the US reported that initial jobless claims fell for the first time since early April. In consequence, LME copper experienced two rounds of increases, reaching as high as USD 7,585/mt. Nevertheless, at the tail of trading, the Federal Reserve (Fed) Chairman Bernanke did not hint more stimulus measures and helped the US dollar index rally from the lows but slash LME copper's early gains. Furthermore, Fitch lowered Spain's credit rating by three notches, encouraging some bears to sell at prices above USD 7,500/mt. LME copper thus slid to early trading session levels, losing the USD 7,500/mt mark and finally ending at USD 7,480/mt. In other news, the proportion of canceled warrants to total LME copper stocks fell further on Thursday, down to 6.48%. PBOC's unexpected move in cutting interest rates spells that China's economic data to be released at the weekend will be softer than anticipated. Therefore, investors should wary of downside risks for copper prices.
Fitch's action is likely to pressure the euro down, while the US dollar index will rebound, which can push LME copper down below USD 7,500/mt. However, China's central bank's move will boost Chinese stock markets somehow and help cap LME copper's downward space. As such, SMM believes that LME copper will move between USD 7,380-7,500/mt during Friday's Asian trading session. The Shanghai Composite Index should move above 2,300, providing support for SHFE copper, which, though, is likely to suffer selling at the highs as both longs and shorts may close positions to shun risks before the weekends. SHFE 1209 copper contract prices will fluctuate in the RMB 53,600-54,600/mt band. Spot copper premiums are estimated between positive RMB 220-280/mt versus SHFE current-month copper contract.