SHANGHAI, Jul. 22 (SMM) –
Last week, LME copper prices initially surged, but then fell back. Recent US economic data was mixed, but positive earnings reports from US corporations boosted US stocks to record highs. Investors left the market ahead of US Fed Chairman Ben Bernanke's statement last Wednesday, however, which caused the US dollar index to fall by 1% from 83 and drove LME copper prices up to the resistance level of USD 7,050/mt. Following Bernanke's statement, LME copper prices fell to USD 6,850/mt as a large number of investors closed positions due to caution. The proportion of LME copper canceled warrants stood above 50%, giving support to copper prices, but did not provide any upward momentum.
China's latest GDP data was close to market expectations. China's leaders emphasized that the government would not introduce any new stimulus policies now that economic indicators are considered acceptable. The Asian Development Bank lowered its expectations for China's economic growth, which pulled down Chinese A-shares by over 2%. SHFE copper prices rose to RMB 50,800/mt, but fell back to RMB 49,300/mt as investors closed positions. Turnover was high, with the daily turnover rate for SHFE three-month copper contract prices over 300%. Daily trading volumes exceeded 1 million lots and total positions grew significantly early in the week, but fell sharply ahead of the weekend, with SHFE copper price performance for the week below that of LME copper.
Copper prices are expected to become more volatile in the coming week. US housing data will be released and is expected to push up US stock prices to another historic high. However, as the US dollar index finds solid support at the 30-day moving average, copper prices will be weighed down. The market expects manufacturing PMIs from many countries will continue to fall, which will put selling pressure on financial and commodity markets.
Standard & Poor's recently downgraded Italy's sovereign credit rating from BBB+ to BBB, and was a sign of pessimism toward that country's ability to recover economically. Interest rates for Italian government bonds coming due in July 2014 rose slightly by 0.116%, to 1.087%, their highest yield since March of this year. HFSF announced that Eurobank, the second largest bank in Greece, has been chosen to purchase the New Hellenic Postbank and Proton Bank, with the Greek government employing Goldman Sachs as HFSF's consultant during the negotiations. Although Greece failed to complete its state-owned assets sales plan to pay back debt, it has still made great strides in improving its banking sector. The Greek government was able to complete stress testing of major domestic banking institutions within the deadline imposed by international aid agencies, as well as raise capital reserves of Greek banks. The euro has stabilized above 1.30, but LME copper prices failed to break through USD 7,000/mt, and are now expected to fall. The CFTC reported that net positions did not decrease noticeably, but with funds remaining bearish towards copper prices. LME copper prices look set to fall and test support at USD 6,800/mt, possibly dipping to USD 6,750/mt.
China's central bank has suspended open market operations for four straight weeks, which helped stabilize monetary conditions, but mainstream financial institutions are still cautious towards liquidity and monetary policies. Chinese A-shares on the Shanghai Composite Index fell below 2,000 last Friday and lack any ability to rebound this coming week. HSBC's July PMI for China will be released this week as well and will not likely show any significant improvement, further weighing down stocks and copper prices. SHFE copper prices will fall to test support at RMB 49,000/mt.