SHANGHAI, Jul. 8 (SMM) – Last Friday’s US non-farm employment capped forecasts, but also fuelled fear that the US Federal Reserve (Fed) will scale back QE soon. This drove investors to sell off risky assets including copper, weighing down base metal prices. Investors turned to US dollar and US shares out of optimism over US economic prospects and worries over European political instability. As a consequence, the Dow Jones closed 1% higher, while European stocks ended 1.3% lower. Gold prices lost 3.1%. LME copper retreated from USD 6,800/mt to USD 6,730/mt, and finally closed at USD 6,768/mt, down more than 2%. 

It was announced last Friday that US non-farm payrolls increased 195,000 in June, well above the 165,000 expected. The unemployment rate held at 7.6%, also beating the 7.5% forecast. These figures signal strong recovery in the US labor market, evidence of the US economic recovery as well. Thanks to this, the Dow Jones Industrial Average closed up 0.98% at 15,135.84 points. The NASDAQ gained 1.04% to finish at 3,479.38 points. The S&P 500 ended 1.02% higher at 1,631.89 points. On the other hand, recovery in the US job market raised anticipation that the Fed will end QE early, sending US government bond yields soaring. The US dollar index hit a three-year high of 84.56 before closing at 84.43. It is widely believed the US dollar index will extend gains for the near term.       

Portugal's Prime Minister Pedro Passos Coelho has reached a deal with his junior coalition partner, the CDS-PP party, to end a rift that had threatened the country's bailout program, a government spokesman said last Friday. EU Economic and Monetary Affairs Commissioner Olli Rehn said if Greece is able to meet all the requirement it promises, international lenders will grant Greece with EUR 8.1 billion in bailout funds in batches. The S&P downgraded Portugal’s sovereignty credit rating outlook from stable to negative July 5. The euro and base metals will remain under downward pressure as worries on the European debt crisis linger.  

The State Council Office recently released Guidance on Financial Support for Economic Restructuring, Transformation and Upgrading. According to the Guidance, prudent monetary policy will be maintained. Banks are encouraged to transfer non-performing loans and the right to write off non-performing loans should be expanded. Qualified banks are allowed to issue financial bonds concerning agriculture. Banks shall not provide credit granting and direct financing to projects in industry suffering overcapacity.  

LME base metals all ended in negative territory, with tin trimming as much has 5.4%. London gold prices shed 2.18%. Markets are now eyeing the quarterly hearing held by the EU Economic and Monetary Affairs Commission tonight, which is to be attended by European Central Bank President Mario Draghi. 

A firm US dollar will drag LME copper down to USD 6,720-6,840/mt during the Asian trading session on Monday. China’s A-shares will inch up, and SHFE 1310 copper contract will fluctuate between RMB 48,500-49,300/mt after a low opening. In spot market, cargo holders will refrain from selling at lows. Downstream producers will show higher buying interest once prices fall below RMB 50,000/mt. Spot premium of RMB 0-100/mt is expected over SHFE 1307 copper contract prices.