SHANGHAI, Jul. 25 (SMM) – Markets continued to absorb a set of soft manufacturing figures Tuesday. Surveys from Germany and other euro zone nations confirmed that the bloc's private sector shrank for a sixth consecutive month in July as manufacturing output plunged, which raised the likelihood that the bloc would slip to recession again. Meanwhile, yields on Spain's short-term government bonds soared and drew the country closer to a full bailout, sending Spanish and Italian stock markets down significantly. Besides, as the European debt crisis spreads to Spain and other major countries in Europe, Luxembourg's finance minister said his country must be prepared to aid Spain any time. Further compounding Europe's woes was that European Union officials said Greece should take more measures to restructure its debts, which further threatened Greece's euro zone membership. In response, the euro dropped to a two-year low again and weighed commodity markets down. Later, the US Richmond Fed released a report showing that its manufacturing activity continued to contract in July, coming in at -17, compared with the revised -1 in June. This indicated that economic recovery of the world's largest economy is still worrisome, and dampened the already weak markets with US equity closing down 1%. LME copper dipped in step with stock markets, the euro, and other risky assets, losing all gains brought by China's strong manufacturing data, and testing the previous session's low USD 7,365/mt before finally ending at USD 7,392/mt, down for three trading days in a row.
There was news Wednesday morning that Moody's turned the outlook of EFSF's 3A credit rating to negative, which drove the euro to a new two-year low and caused LME copper to fall immediately after the opening, down to the lowest in recent two trading days. In this context, SMM believes LME copper may face further downside room and move between USD 7,320-7,430/mt during Wednesday's Asian trading session. Chinese stock markets will start down. Hence, SHFE copper prices will fluctuate weakly following a low open, and may test a low at RMB 53,500/mt amid short selling, while SHFE 1211 copper contract will hover in the RMB 53,500-54,500/mt range. Spot copper offers are estimated between premiums of positive RMB 80-180/mt versus SHFE 1208 copper contract.