SHANGHAI, Jun. 21 (SMM) – Markets continued to digest yesterday the US Federal Reserve (Fed)’s statement on monetary policy and Fed Chairman Bernanke’s speech. Bernanke said the Fed may scale back USD 85 billion/month debt-buying program later this year. The Fed may end debt-buying program next year provided that US economic growth accelerates, unemployment falls and inflation reaches the 2% target. Investors pulled out of the market following Bernanke’s remarks. Slowing manufacturing activity in China, the world’s top metal consumer, also weighted down base metals. Commodity markets and financial markets both fell, with gold tumbling to a 2-1/2-year low and crude oil trimming more than 3%. LME copper also plunged to the lowest in 20 months at USD 6,750/mt, and finally closed at USD 6,773/mt, down nearly 3%. It’s worth noting that spot copper premium over LME copper did not drop along with falling LME copper, which still hovered around USD 32/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 suffered its biggest single day loss since 2012 US general election (November 6), and US Markit June preliminary 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 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 estimate 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 copper has fallen to the lowest for the year, but downside space should be limited on Friday, with prices expected between USD 6,740-6,830/mt during today’s Asian trading session. China’s A-shares will slide, and SHFE 1310 copper contract move within RMB 48,800-49,600/mt after a low opening. In spot market, supply will grow as the end-of-month liquidity crunch bit in. Spot premium will be limited on falling SHFE copper, with spot copper expected RMB 100-250/mt higher than SHFE 1307 copper contract prices.