SMM Zinc Market Morning Review (2013-7-26)

SHANGHAI, Jul. 26 (SMM) – LME zinc prices overnight opened at USD 1,885/mt. UK's 2Q GDP was in line with market expectations. As the US dollar index rose, LME zinc prices fell, pointing towards the 10, 5 and 20 day moving average. Goldman Sachs lowered its expectations of US 2Q GDP growth again, and Wall Street Journal's Jon Hilsenrath published an article in which he believed US Federal Reserve's July policy meeting will maintain the USD 85 billion monthly government bond purchasing plan. This enhanced expectations that the Fed will maintain existing QE3, and pushed down the US dollar index. LME zinc prices thus rebounded and finally closed at USD 1,877/mt, down USD 7/mt, or 0.37%. Trading volumes decreased by 3,188 lots, to 7,188 lots, and total positions decreased by 2,157 lots, to 249,667 lots. LME zinc inventories fell by 4,350 mt, to 1,055,300 mt.

US economic data released overnight were mixed. Durable goods orders rose more than expected by 4.2% in June, but initial jobless claims in the week ending July 20 were worse than expected. Goldman Sachs cut its forecast for US Q2 GDP growth following these figures, weighing LME base metals prices down. However, Hilsenrath said in an article that the US Federal Reserve (Fed) may keep current bond-buying program in place during the July meeting. This raised expectations that the Fed will maintain QE3 for the immediate term, helping base metals rally.  

European economic indicators were also mixed. The UK Q2 GDP grew 0.6%, the biggest growth since the first quarter of 2011. Nevertheless, this also lowered the possibility of further loose monetary policy by the Bank of England. The GBP suffered selloff following the data and fell sharply against the US dollar. Germany's IFO Business Confidence Index rose in July, but IFO business expectations weakened slightly to 102.4. This aggravated worries that the country's economy may slip into recession again, but also increased the possibility of further easing monetary policy by the European Central Bank.

In China, funds outstanding for foreign exchange pointed to negative growth in June. Cloudy monetary policy is jittering investors. Markets are now expecting the People's Bank of China (PBOC) to launch reverse repurchase now that the PBOC has not launched repurchase for six consecutive months.  

The US dollar index lost 0.6%. US stock markets rose, while European stocks generally fell. Asian shares mostly closed with declines. LME base metals prices ended in negative territory except lead

LME zinc prices will move between USD 1,865-1,890/mt today, and SHFE 1310 zinc contract prices should fluctuate between RMB 14,580-14,700/mt, with spot premiums against SHFE 1309 zinc contract prices between RMB 80-110/mt.