SHANGHAI, Oct. 10 (SMM) – US government remains partially closed, fuelling concerns that this may undermine US economic growth and cut into demand for raw materials. Although Janet Yellen has been nominated as Bernanke's successor, markets expect that she will not be in a rush to bring accommodative monetary policy to an end. A majority of Fed officials argue that QE3 should be tapered off later this year and be ended in mid-2014, according to the minutes of the latest Fed policy meeting. Fed officials are worried that keeping USD-85 billion-per-month bond buying program in place will negatively affect the effectiveness of policy communication as investors had widely expected the Fed to begin to scale back QE3. The greenback rebounded as a result, weighing heavily on commodity prices. LME copper retreated from USD 7,100/mt to USD 7,087/mt before closing down 1.6% at USD 7,117/mt, the worst performer among base metals. The red metal will seek support at USD 7,030-7,050/mt and there is no need to be overly pessimistic toward copper prices since longs may buy at lows.
US President Barack Obama has nominated Yellen as Bernanke’s successor. The nomination means the current easy monetary policy will remain in place since Yellen is described as “one of the most dovish members of the Fed's policy-setting committee”. This will benefit commodity and financial markets for the medium and long term. However, this news has been digested earlier and no tangible progress has been made over the budget talks, so market reaction was no strong, leaving US stocks mixed. The minutes of the Fed September policy meeting showed the Fed has decided to maintain bond buying program, but most Fed officials are still in favor of winding down QE3 later this year. The US dollar index rose to 80.567 immediately following the release of the minutes, putting downward pressure on base metals.
Germany saw its industrial output grow 1.4% MoM in August after being seasonally adjusted, outperforming expectations for a 1.0% growth. July’s reading was revised down from a 1.7% decline to a 1.1% drop. These are signs of further recovery in German economy. However, UK’s industrial production, manufacturing and trade account in August surprisingly missed forecasts, with industrial output falling 1.1% from July. This raised doubt over the strength of the country’s economy in Q3. The pound trimmed 0.8% against the greenback in the wake of these worse-than-expected data.
The US dollar index nudged up 0.43%. US stocks were mixed, with the Dow Jones closing 0.18% higher. European stock markets generally fell, while most Asian shares closed up. All base metals on the London Metal Exchange, except aluminum, ended in negative growth territory.
Some investors will enter the market at lows, underpinning LME copper. Once Obama’s nomination of Yellen as the next chairperson of the Fed gets approval, the US dollar will weaken. LME copper is expected to move within USD 7,080-7,180/mt during Thursday’s Asian trading hours, with little downside room. The Shanghai Composite Index will tick up. SHFE 1401 copper contract will fluctuate between RMB 51,300-51,900/mt after a low opening. In spot markets, the price spread between SHFE 1310 and 1311 copper contracts will widen, so backwardation will narrow. A contango of RMB 0-50/mt and a backwardation of RMB 0-80/mt are expected over SHFE 1310 copper contract.