SHANGHAI, Jun. 26 (SMM) – The People’s Bank of China (PBOC) stated yesterday that liquidity risks in current banking system are controllable and that violent swing in short-term interest rate is only temporary. The PBOC will continue to employ a combination of open market operations, relending, rediscount rate, Short-Term Liquidity Operations (SLO) and Standing Lending Facility (SLF) to adjust liquidity in banking system so as to stabilize monetary market. This alleviated worries over liquidity crunch in China. US economic indicators released overnight cheered investors up. Consumer Confidence Index in June hit the highest since January 2008. New home sales and home price index exceed forecasts. Manufacturing and durable goods orders were also positive. As such, US stocks rose, with the Dow Jones up 0.69% and European stocks also closed 1.5% higher. LME copper bounced back from close to 3-year low to USD 6,828/mt, up USD 62/mt. However, Credit Suisse lowered its forecast for copper prices in 2013 from USD 7,482/mt to USD 7,240/mt. Deutsche Bank projected that copper prices will fall to USD 7,547/mt, down 4% from its earlier estimate. Goldman Sachs anticipated that copper prices will slid to USD 7,216/mt from its previous forecast of USD 7,600/mt. Copper prices are still facing downward risks as the gains are contributed mainly by short-covering.
China’s A-shares and base metals fell in the morning Asian trading session due to apprehension over liquidity crunch in China, with A-shares tumbling to the lowest since February 2009 at 1,849 points. Financial markets, however, rebounded in the afternoon session, which some believe is attributable to anticipation that the PBOC will send signals of loose monetary policy during the 2013 Lujiazui Forum press conference held in the afternoon. No clear signal was sent during the conference, though. Nevertheless, the PBOC released last night an article titled Adjusting Liquidity within Rational Level, Stabilizing Monetary Market, which showed the central bank’s intention of injecting liquidity. The article says that although current liquidity is not in shortage, the PBOC has recently provided support to qualified financial institutions. The PBOC did not launch open market operations yesterday morning, with no issuance of 3-month Central Bank Bills and no initiation of repos or reverse repos. Markets are now expecting the central bank to resume reverse repos.
In the US, S&P/Case-Shiller data showed that home price composite index in 20 US cities rose 2.5% in April, the largest monthly growth on record. The Conference Board announced the US Consumer Confidence Index advanced from 76.2 to 81.4 in June, well above the 75.1 forecast. Durable goods orders in May grew 3.6% MoM, excluding a 0.7% growth in transport durable goods orders and a 9.3% gain in non-national defense capital new orders.
European and US stocks closed up. LME base metals closed with gains across the board.
The cut in forecasts for copper prices by several banks and a lack of substantial buying will keep LME copper in check within USD 6,700-6,820/mt during the Asian trading session on Wednesday. China’s A-shares will be mired, and SHFE 1310 copper contract will move within RMB 48,300-49,200/mt after a high opening. In spot market, spot premium will narrow to RMB 20-120/mt is expected SHFE 1307 copper contract prices.