SHANGHAI, Jul. 17 (SMM) – Markets have temporarily shifted their attention from the European debt crisis to the US economy and monetary policy. Should the Federal Reserve (Fed) Chairman Ben Bernanke indicate further easing measures at testimony to Congress, the US dollar index will snap its increasing momentum and bring an opportunity for base metals and other risky assets to rebound.
The Fed's Chairman Ben Bernanke will give his Semiannual Monetary Policy Report to the Congress Tuesday evening at Senate Finance Committee, and House Financial Services Committee will accept this report Wednesday. If Bernanke's testimony fails to mention clues on the third round of quantitative easing, the US dollar index will be strongly supported. On the contrary, the US dollar index will come under more pressure. If Bernanke does not indicate the Fed will implement more loose monetary policies very soon, risky assets are expected to suffer sell-offs. According to data released by the US Commerce Department July 16, the US retail sales fell unexpectedly in June, down 0.5%, and down for three consecutive months, in strong contrast with earlier market anticipation of an increase of 0.1%. This is the latest evidence the world's largest economy was slowing and also provides clues for a softening US dollar index.
In China, the State Council will hold a mid-year economic meeting as early as this Wednesday and set tone for government control in 2H. China's current economic growth has fallen for 6 quarters in a row, down below 8% in 2Q. This meeting will decide directions for China's fiscal and monetary policies in 2H, and markets generally expect that related authorities will likely introduce a set of measures to boost stable economic growth.
From current situation, the world's major countries still have room to further relax monetary policies, and they need to adopt more measures to stabilize markets. Base metals have rebounded after touching lows and will likely continue moving higher if more loose monetary measures are implemented.