SHANGHAI, Jun. 26 (SMM) -- The two-day G20 summit ended last week, with the IMF receiving USD 450 billion in pledges, expanding the current level of USD 380 billion. World leaders reached consensus on strengthening the global economic recovery during the summit, and according to the latest G20 draft, the EU will introduce detailed plans to build a more sound and stable banking system and integrated fiscal system. EU leaders will hold meetings in the coming week to discuss measures to deal with uneven global economic growth and negotiate the creation of a banking union to weather the current crisis. However, although these rescue plans have helped the euro zone temporarily avoid further economic turmoil, the European debt crisis is far from over as the Spanish bond yields again hit historical highs. The euro zone’s ZEW Indicator of Economic Sentiment fell sharply in June, serving as a strong warning to markets to temper optimism over the region’s economic performance, and to factor in the upcoming German CPI for June and unemployment data for May, as well as the euro zone Industrial Confidence Index for June.
The US economy will not rebound in the near term as the Fed officials lowered economic growth outlooks for both 2012 and 2013. The Fed announced it would extend the “Operation Twist” program, but failed to hint at any QE3 measures. The IMF received USD 450 billion in pledges for financial aid during the G20 summit, but this pledge is only a framework agreement and will have a limited impact on the global economy. US equity markets remain volatile, while the US dollar index has gained strong support at the 40-day moving average and is likely to move higher. US crude oil prices will likely fall below USD 80/bbl, so SMM believes LME copper may slide below the 20-day moving average again in the coming week, falling to USD 7,350/mt.
HSBC’s flash China manufacturing PMI was reported below the 50 mark, and data showed as of June 19th, that the margin transaction balance of Chinese stock markets was RMB 60.309 billion, up RMB 188 million from the previous day’s RMB 60.121 billion, another historical high. The Shanghai Composite Index retreated below 2,300 last week, adding pressures to domestic copper prices. As June ends, investors in the coming week will mainly close positions on the SHFE market. Positions for the most active SHFE 1210 copper contracts grew sharply during the last trading day ahead of the Dragon Boat Festival holiday, with shorts taking the upper hand. In this context, SMM believes that SHFE copper will fluctuate weakly between RMB 54,000-55,500/mt this coming week.