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Metals Expected to Rise on Liquidity Injection
Jul 6,2012 17:39CST
smm insight
Metals stand great chance for rebound in short term.

SHANGHAI, Jul. 6 (SMM) – Although central banks decided to release liquidity to boost growth, these policies were within market expectations, and most investors opted to wait on sidelines before the release of US employment rate. In response, LME base metals presented a mixed bag on Thursday.

On Thursday, the moves by several central banks triggered market expectations on easing liquidity. China’s central bank announced unexpectedly Thursday it will reduce the benchmark interest rate for one-year deposits by 25 basis points and that for one-year lending by 31 basis points starting July 6. Later, ECB announced to lower its interest rate by 25 basis points to 0.75%, it was the first time the ECB lowered its benchmark rate below 1% ever. The ECB also cut its overnight deposit rate by 25 basis points to zero for the first time, and lowered its overnight lending rate by 25 basis points to 1.50%. Besides, the Bank of England earlier declared to keep its rate unchanged at 0.5%, but it will expand the quantitative easing by GBP 50 billion. These actions reflected the determinations for the central banks to stimulate growth. In general, interest rate cuts suggest these countries may adopt looser monetary policies to maintain stable growth. Since the rate cuts are expected to increase liquidity for enterprises and, in turn, promote demand for fundamental raw materials, metal prices should benefit from the moves. However, cutting rates twice in a month may indicate slower growth which is adverse to commodities.

In addition, market will be more focused on the US non-farm payrolls to be released on Friday. The initial jobless claims dropped to 374,000 during June 24-30 from 386,000 recorded in the previous week, showing the biggest decline for the figure since April, and suggesting slight improvement in US employment conditions. Thus, market was optimistic on the non-farm payrolls to be released. To sum up, metals stand great chance for rebound in short term.

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