SHANGHAI, Jul. 6 (SMM) – The People's Bank of China (PBOC), the European Central Bank (ECB) and Bank of England (BOE) all loosened monetary policies Thursday. The PBOC announced it would lower the benchmark one-year deposit rate by 25 basis points for financial institutions, and by 31 basis points for the benchmark one-year lending rate, effective from July 6, 2012. In the meantime, the PBOC announced it would adjust limit of the floating range for the lending rate 0.7 times the benchmark rate, effective from the same day. After the implementation of the announcement, the benchmark one-year deposit rate will fall from current 3.25% to 3.00%, while the benchmark one-year lending rate from 6.31% to 6.00%. The PBOC's cut in interest rates was the second of this year with the first cut seen on June 8, and a cut in limit of the floating range for the lending rate was also the second of the same kind thus far this year. The BOE announced it would purchase GBP 50 billion in assets to overcome economic recession, comforting investors who earlier expected the purchase scale of GBP 75 billion and a possible cut in the interest rate. The financial market moved higher rapidly following a set of loose monetary measures as LME copper surged strongly to USD 7,790/mt. However, the ECB later announced to slash its main interest rate by 25 basis points to a record low of 0.75% and overnight deposit and lending rates to zero in a bid to lift the euro zone economy disturbed by sovereignty debt crisis. The ECB's move was within market anticipation but failed to introduce more radical actions such as purchasing government bonds and providing large liquidity for the banking industry, and the ECB's President Mario Draghi made disappointing statements over economic prospects sine he did not indicate further loose measures. The euro thus dived swiftly by over 1%, while European stock markets closed down by 0.2%. Gold prices slipped by 0.8%, and crude oil prices closed down by 0.5%. LME copper prices also experienced two waves of drops, retreating to a low at USD 7,635/mt and finally ending at USD 7,685/mt, down USD 35/mt.
Cuts in interest rates from central banks and optimism towards the US nonfarm payroll report will help improve market sentiment, but the euro will remain weak. Coupled with great resistance at the 60-day moving average, SMM believes LME copper will move between USD 7,670-7,770/mt during Friday's Asian trading session. The Shanghai Composite Index will struggle around 2,200. SHFE copper prices will start flat and then fluctuate around RMB 56,000/mt, with SHFE 1210 copper contract expected between RMB 55,500-56,500/mt. Spot copper offers are estimated between discounts of negative RMB 50/mt and premiums of positive RMB 20/mt versus SHFE 1207 copper contract.
