SHANGHAI, Jul. 2 (SMM) – Last Friday, the latest Eurozone rescue pact continued to boost a range of commodities and the financial market. Leaders of the 17 state members in the Euro zone reached consensus that rescue funds could be used for sovereign debt purchases without forcing these countries to adopt extra austerity measures. Besides, these countries are also allowed to recapitalize banks directly without increasing budget deficit. Although investors knew little about other details of the pact, it still relieved investors who held positions of commodities, stocks, as well as the euro. In response, the euro registered the biggest one-day gain of 1.72% in the past eight months, and investors were eager to cover short positions. LME copper thus extended gains and gradually broke resistance at USD 7,600/mt and USD 7,700/mt, before finally ending at USD 7,738/mt, a considerable increase of more than 4%, and the largest intraday gain since last November. Despite last Friday's sharp gains, LME copper still ended the second quarter down by around 9%, the biggest drop since the middle of last year. In other news, the NBS announced at the weekend that China's manufacturing PMI came in at 50.2% in June, down by 0.2 percentage points MoM, and also the lowest in seven months. Besides, the new order index was 49.2% in June, down by 0.6 percentage points MoM, and below the 50 mark for two consecutive months, an indication China's manufacturing sector continues to fall. In this context, investors should be wary of further copper price drops on China's weak economic data.
Despite appreciable rebounds last Friday, soft Chinese economic figures may drag LME copper down. Furthermore, the final HSBC China manufacturing PMI will be announced Monday and is expected by markets to remain below the 50 mark. As such, SMM believes that LME copper may retreat but will move at relatively high levels between USD 7,600 -7,740/mt during Monday's Asian trading hours. Chinese stock markets will likely continue to rally. Hence, SHFE copper will start higher but will meet resistance at the 60-day moving average, and SHFE 1210 copper contract will hover in the RMB 55,600-56,800/mt range. Spot copper offers are estimated between premiums of positive RMB 50-100/mt versus SHFE current-month copper contract.