SHANGHAI, Jun. 25 (SMM) – The US dollar index has increased above 82 after the Fed announced to wind down the QE. Coupled with weakening Chinese economy, the twists and turns of US recovery, and revival of the European crisis, the base metals will be weighed down in the medium to long term.
The US dollar index rose to 82.6 Monday morning, up 2.6%, putting an end to the flash rebound in China’s base metals markets.
China’s M2 has been growing rapidly during the past few years, but this does not ensure ample liquidity. In this context, it is vital to lead capital to physical economy.
Although the Fed proposed a schedule for scaling back the QE, low inflation and the unclear future for the US recovery still leaves uncertainty to the termination of the asset purchasing. However, the US will not see capital shortage as long as the country presents faster recovery than China, Europe and other emerging markets.
In Europe, despite the euro climbing to 1.34, Greece was again put under spot light due to the political instability. The Greece’s Democratic Left Party announced to pull out of the coalition government, and the country is still facing a EUR 3 billion shortage in bailout funds. This may exacerbate the Greek crisis should the country fail to guarantee a coalition government as promised.
Meanwhile, LME and SHFE copper inventories kept climbing despite the high canceled warrant ratio for LME copper, declaring the end of the traditional high demand season. Under such circumstances, base metals prices will unlikely stage rebound.