SHANGHAI, Jun. 20 (SMM) – Investors pulled out of the market ahead of the result of the US Federal Reserve (Fed) policy meeting. Some were worried that the US economy will hardly continue to expand if the Fed brings monetary stimulus to an end. Speculation that the Fed will scale back bond-buying program before the end of this year caused a slump in financial markets. The US dollar index rose above 81, sending commodity prices down. US shares shed more than 1%. LME copper also slid to USD 6,925/mt before closing at USD 6,976/mt, down USD 14/mt. HSBC’s flash China manufacturing PMI for June will be released today. If the result turns out to miss market expectations, copper prices will face downward pressure.
The US Federal Reserve announced it will maintain the USD 85 billion/month debt purchasing plan, meaning it will buy USD 45 billion long-term government bonds while purchasing USD 40 billion mortgage backed securities. Meanwhile, federal fund rate was maintained unchanged between 0-0.25%, which passed by a 10-2 vote. Kansas City Fed Chairman George and St. Louis Fed Chairman Bullard voted against the decision, with the former objecting continuous easing monetary policies while the latter suggesting the Fed release additional easing policies. Bernanke hinted at a press conference that the Fed will likely quit QE3 next year if US economic recovery continues. In this context, the US dollar index extended increases, hitting a record high in a month of 81.50; the AUD, NZD, CHF and JPY against the US dollar dropped by over 1%, and the GBP and the euro against the US dollar fell by nearly 1%; US stocks markets extended declines, with the Dow Jones Industrial Average sliding by 1.01%, and Standard & Poor's 500 Index falling by 1.01%.
The IMF released the Spanish Economic Assessment Report, stating Spain's economic imbalance eased, but as the outlook is still severe, the country should take more actions to boost economic growth and increase jobs. Cyprus President expressed in a letter to euro zone leaders and the country's creditors that strict aid requirements by international creditors pushed the country to recession, and hoped the aid details will be revised. But three euro zone officials said yesterday they have no intention to change the aid clause.
Chinese Premier Li Keqiang held an executive meeting of the State Council on June 19 to eliminate and delegate 32 administrative examination and approval items, pushing pilot work of personal investment overseas. The meeting shows domestic economic structural reform was commenced.
In other markets, the US dollar index gained 0.77%. Gold prices slid 1.18%. The Down Jones Industrial Average closed 1.35% lower.
The Fed announced Wednesday that it will keep QE3 in place. Fed Chairman Bernanke said the Fed will probably start to wind down bond-buying program at the end of this year and end it completely sometime in 2014. The Fed anticipates that unemployment rate in the US will fall to near 6.5% by 2014, which means interest rate will be hiked earlier than expected. Market focus has now shifted to HSBC’s flash China manufacturing PMI for June, which investors believe will hardly rebound to above 50. As such, LME copper will remain low at USD 6,890-6,990/mt during the Asian trading session on Thursday. The Shanghai Composite Index will continue to fall. SHFE 1310 copper contract will move lower after a low opening, with prices between RMB 50,000-50,800/mt. Spot copper will be RMB 150-250/mt higher than SHFE 1307 copper contract prices.