SHANGHAI, Jun. 21 (SMM) – The market was absorbing growing expectations that the US Federal Reserve (Fed) will back off QE3. HSBC's June PMI for China deteriorated, triggering concerns over China's demand for zinc. The US dollar index strengthened to break through 92, weighing on base metals prices. LME zinc prices overnight opened at USD 1,852/mt, fluctuating around USD 1,850/mt briefly before plummeting due to increasing selling pressure. PMIs in many European countries fell short of expectations, pulling down LME zinc prices to USD 1,820.5/mt. US economic data was mixed, and LME zinc price drops narrowed, hovering around USD 1,830/mt, and finally closing at USD 1,834.8/mt, down USD 28/mt or 1.5%. Trading volumes increased by 4,358 lots, to 13,319 lots, and total positions increased by 5,131 lots, to 259,601 lots. LME zinc inventories fell by 3,500 mt, to 1,074,525 mt.
The Fed signaled that it may cut stimulus policy later this year, triggering market concerns. The market expects the Fed will likely cut USD 20 billion in monthly assets purchasing in September. The Dow Jones Industrial Average dropped by the most since 2012 US general election (November 6), and US Markit June PMI fell to 52.2, while the figure was expected to rise to 52.5, compared to the final of 52.3 in May. New export orders shrank for the second consecutive month, with overseas demand the weakest since October 2012; the number of US initial jobless claims for the week ending June 15 was 354,000, higher than both expectations and the previous month, weighing down base metals prices. But existing home sales rose 4.2% in May, much higher than the previous month and the forecast. US 10-year government bond yields rose by 11 basis points, to 2.425%, the highest since August 2011.
HSBC/Markit released June 20 that China's initial June PMI fell to 48.3, compared to the final of 49.2 in the previous month, with new order index hitting a record low in 10 months, down from 49.5 in the previous month, to 47.1. Meanwhile, output price index shrank for the first time in eight months, with job subitem index and new export order index below 50 for the third consecutive month, falling further from May. That shows the manufacturing lacked momentum to recovery due to sluggish domestic and overseas demand. The final China's June PMI from HSBC/Markit and official data will be released on July 1, which are pessimistic, and will continue to weigh on commodity prices. Coupled with surging overnight inter-bank offered rate, the Shanghai Composite Index closed at 2,084.02, down 59.43 or 2.77%; Shanghai base metals prices closed with declines, with copper falling the most by RMB 1,070/mt.
Euro zone June initial PMI rose to 48.7, a record high in one and a half years (since February 2012), while the figure was expected to rise to 48.6, and the final data in May was 48.3, a new high in 15 months; Germany's initial Markit/BME PMI in June fell to 48.7, below expectations of 49.8, and also lower than the minimum estimated of 49.0, with the final data of 49.4 in May. That reflected euro zone will not come out of recession in Q2.
LME base metals prices plummeted; the US dollar index rose by 0.6%; the Dow Jones Industrial Average plunged by 2.34%; Comex gold prices closed down 6.4%, at USD 1,286.20/oz, the lowest closing price in three years.
LME zinc prices will move between USD 1,810-1,840/mt today, and SHFE 1310 zinc contract prices should fluctuate between RMB 14,200-14,350/mt, with spot premiums against SHFE 1309 zinc contract prices narrowing to RMB 50-100/mt.