SHANGHAI, Oct. 8 (SMM) – Non-essential US government has been forced to close, keeping investors cautious. Some fear that the current impasse in budget negotiation means that is little chance that an agreement will be reached before the October 17 deadline to raise the debt ceiling. A failure to raise the government’s borrowing authority before the deadline will lead to default. US stock markets plunged as a consequence. A prolonged US government shutdown will hurt base metals demand by constraining US economic activities. However, a third straight month of growth in the latest China PMI and a retreat in the US dollar index from 80 underpinned copper prices from the bottom. LME copper hovered near USD 7,250/mt on Monday and closed at USD 7,238/mt, down a mere USD 13/mt.   

 

Parts of US federal government shut down at 12:01 a.m. ET last Tuesday after lawmakers in the House and the Senate failed agree on a spending bill to fund the government, the first shutdown since 1996. No progress has been made over the negotiation between two parties during the week after the shutdown. US President Barack Obama said the government will not initiate talks unless the House of Representatives agrees on the government financing bill. John Boehner, Speaker of the House of Representatives vowed not to raise debt ceiling without a “serious conversation” about what is driving the debt. Markets expect that a re-opening of US government will be impossible for the immediate term. This sent US stock markets down. Release of US non-farm payrolls for September was delayed due to the government shutdown. 166,000 jobs were added in September, missing forecasts, according to the ADP National Employment Report. The reading in August was revised down to 159,000.        

 

The World Bank cut its economic growth forecasts for East Asia yesterday. The bank also revised down its projections for China’s economic growth for 2013 by 0.8% since the Chinese economy has yet to transform to a consumption-driven growth model. China’s official manufacturing PMI for September hit a 17-month high of 51.1. The figure marks a third straight month of growth, but still fell short of the 51.6 expected. HSBC’s final China manufacturing PMI released earlier was well below flash reading, indicating the upward momentum in the world’s second largest economy is not strong enough, offering little support to base metals prices.     

 

The US dollar index slipped below 80. The Dow Jones tumbled below 15,000 points to a one-month low. Base metals on the London Metal Exchange were mixed.  

 

Trading activity will increase now that Chinese investors have returned to the market from the week-long holiday. LME copper is expected to move within USD 7,200-7,280/mt during Tuesday’s Asian trading hours. The Shanghai Composite Index will rebound, which will help SHFE 1312 copper contract recoup some of its earlier losses. The most active SHFE copper contract will likely fluctuate between RMB 52,200-52,900/mt. In spot markets, cargo holders will not be anxious to sell now that tightness in liquidity has eased. A contango of RMB 0-20/mt and a backwardation of RMB 0-100/mt are expected over SHFE 1310 copper contract.