SHANGHAI, Oct. 18 (SMM) – Dagong Global Credit Rating cut US sovereign credit rating to A- on Thursday. Fitch Ratings warned earlier of a possible downgrade in US sovereign credit rating. As a consequence, the US dollar index shed 1%, while gold prices soared. US default has been averted for now after the Congress passed a deal to reopen the government till January 15 and extend the debt ceiling through February 7. This will give the Congress more time for to consider US fiscal policy, but also raised concerns that two chambers may enter another stalemate ahead of the new deadline. Investors began to assess the economic loss caused by the 16-day partial government shutdown. S&P estimated that US government shutdown will drag US Q4 GDP down by 0.6% and incur a USD 24 billion loss in the US economy. This cased base metals prices to fall. Later in the day, however, President of the Federal Reserve Bank of Dallas, who has long been a supporter of QE3 taper, said he wanted to keep QE3 in place. This raised anticipation that the Fed will maintain current accommodative monetary policy, offsetting concerns over negative economic impact from the government shutdown. As a result, S&P hit a new session high and NASDAQ hit a 13-year high. LME copper recovered some of its earlier losses, and closed Thursday down USD 32/mt at USD 7,233/mt. China’s GDP and industrial value-added scheduled to be released today will influence base metals price trends.         

Commodity prices actually fell after the US Congress approved a deal to end a partial government shutdown and avoid unprecedented default, as market attention shifted onto US economic recovery and QE3 taper. Dagong Global Credit Rating, a Chinese ratings agency, downgraded US sovereign credit rating to A- on Thursday, saying the deal struck by Congress failed to solve the fundamental cause of its debt problem. The rating agency said that the temporary fix of the debt issue will not improve repayment ability of the US in the long-term, but could trigger defaults at any time in the future. The deal means only a temporary escape from a debt default, but hasn't changed the fact that government borrowing is growing at a faster pace than that of overall economic growth and fiscal revenues, Dagong Global Credit Rating said in a statement. Market caution will rule the market before the US announces a slew of economic indicators.

China’s real FDI hit USD 88.6 billion during the first three quarters, up 6.22% YoY. Real FDI in September also grew 4.88% YoY to USD 8.84 billion, marking an eighth straight month of positive growth. Real FDI in August was less than 1%. Continuous inflows of foreign capital are an important reason behind the recent appreciation of RMB. 

European and US stock markets were mixed. Base metals on the London Metal Exchange recouped some losses during European session, helped by a weaker greenback.

Caution will permeate the market. LME copper is expected to move within USD 7,180-7,250/mt during Friday’s Asian trading hours. The Shanghai Composite Index will rally. SHFE 1401 copper contract will fluctuate between RMB 51,700-52,300/mt. In spot markets, a contango of RMB 0-80/mt and a backwardation of RMB 0-80/mt are expected over SHFE 1311 copper contract.