SHANGHAI, Jun. 20 (SMM) – Base metals trended higher Tuesday, which was largely attributed to positive news on Greece as officials there said the country would form the coalition government later on Wednesday. This favorable news alleviated market worries over uncertainty in Greece's debt crisis.
Markets are eyeing on the Federal Reserve (Fed) policy statements, expecting no changes in the interest rates. The possibility of the Fed introducing QE3 measures is low, but markets are optimistic the Fed will extend the Operation Twist stimulus program. Markets also anticipate the Fed will announce to provide more liquidity on Wednesday. In response, the Dow Jones Industrial Average closed 95.51 or 0.75% to 12,837.33, the Standard & Poor's 500 Index ended 13.20 or 0.98% to 1,357.98, and the Nasdaq Composite Index settled 34.43 or 1.19% to 2,929.76. Besides, date released Tuesday revealed that the ZEW Indicator of Economic Sentiment for Germany fell by 27.7 points to a level of minus 16.9 in June, well below the market expectation of 4.0, and the largest one-month drop since October 1998. This triggered market speculation the European Central Bank may introduce a new round of monetary stimulus measures, which will help push the financial market higher over the near term.
Turning to European markets, Spain met its target in the latest government bond auction, despite climbing bound yields, an indication that investors are still confident about Spain. Meanwhile, markets expect Greece will form the new coalition government very soon, also easing investor worries. In addition, the European Union hinted it will consider accelerating the integration within the Euro zone at the G20 summit and promised to take additional measures to deal with the European debt crisis. All these are positive signals for markets and will support base metals. Nevertheless, investors will keep generally cautious ahead of the Fed policy meeting. Although investors are holding strong expectations over another round of quantitative easing, uncertainty in Europe's debt woes continue to fret markets. As such, SMM holds the view that base metals will continue to lurch at current values on Wednesday.