SHANGHAI, Jul. 17 (SMM) – The financial market was little changed overnight. It was reported that Mario Draghi, the President of the European Central Bank (ECB) advocated senior bondholders of the most troubled Spanish banks should assume losses. This meant that the ECB's stance changed with regard to how to deal with some creditors when rescuing Spain's banking industry, which caused the euro to hover around a two-year low. Later, the US announced that its retail sales dropped unexpectedly in June, down by 0.5%, well below market expectations of an increase of 0.2%. Coupled with the fact that the International Monetary Fund (IMF) cut global and China's economic growth expectations for both 2012 and 2013, stock markets and other risky assets came under pressure, with US equity markets surrendering some of last Friday's gains, imposing great resistance to LME copper. Nevertheless, the Federal Reserve Bank of New York released reports that its manufacturing index was 7.4 in July, up from its revised reading of 2.29 in June, and reports said manufacturing situation in July improve slightly. Besides, investors awaited Federal Reserve (Fed) Chairman Ben Bernanke's testimony to Congress Tuesday and Wednesday concerning its posture on supporting weak economic recovery, and they still held hope the Fed would indicate QE3 measures. This led the US dollar index to reverse earlier increases, lowering to test 83, which gave a boost to LME copper somehow. LME copper prices, though, kept fluctuating in their previous trading range overnight amid relatively muted market activity and finally ended at USD 7,696/mt, down slightly by USD 19/mt.
After lowering Italy's credit rating to Baa2 and placing a negative outlook July 13, Moody's again cut the its long-term ratings on 10 Italian banks and its issuer ratings on three Italian financial institutions by one to two notches, pointing to increasing risks that the Italian government is unable to provide financial support for the country's banking industry. However, market speculation over QE3 measures is low and will depress the US dollar index but bolster the euro, which will fluctuate in a narrow band. Hence, SMM believes LME copper may move cautiously between USD 7,650-7,720/mt during Tuesday's Asian trading session. The Shanghai Composite Index will extend weakness. SHFE copper prices will open flat and then lurch, registering weaker performance than other base metals, while SHFE 1210 copper contract will hover in the RMB 55,800-56,300/mt range. Spot copper offers are estimated between discounts of negative RMB 50/mt and premiums of positive RMB 50/mt versus SHFE 1208 copper contract.