SMM Lead Market Morning Review (2014-3-7)

SHANGHAI, Mar. 7 (SMM) – A run of European and US economic data released overnight was revised up, and the Bank of England (BOE) and European Central Bank (ECB) both decided to maintain their current monetary policies. As a result, the euro surged to a yearly high of 0.94% against the US dollar, lending impetus to base metals prices to rebound. LME lead prices overnight basically hovered around USD 2,120/mt after starting at USD 2,128/mt, and then rose to a high of USD 2,152.5/mt during European trading hours. The metal finally closed up USD 17.3/mt or 0.81% at USD 2,143.8/mt. Trading volumes shed 1,676 lots to 4,334 lots, positions gained 1,322 lots to 134,254 lots, and LME lead inventories expanded 1,325 mt to 203,975 mt. Discounts of LME cash zinc prices widened to USD 29/mt over LME 1403 zinc contract prices, putting downward pressure on LME lead fundamentals.

US initial jobless claims for the week ending February 28 were 323,000, lower than the 336,000 expected and 349,000 a week earlier. The improved job data may bode well for the nation's economic growth which was plagued by the cold spell. US January factory orders declined 0.7%, better than the 1.5% fall in December.

The ECB left its key interest rate unchanged at 0.25%, and the BOE also kept its 0.5% interest rate and GBP 375 billion asset purchasing program in place. The decisions matched market estimates. However, the ECB Chairman Mario Draghi did not mention any further monetary easing at the press conference after the policy meeting, disappointing investors. In this context, the euro broke above 1.38 against the dollar.

As Crimea’s parliament has voted in favor of joining Russia and voted to hold a referendum in 10 days on the status of Crimea, the crisis in Ukraine worsened.

European and US equities rallied, and LME base metals also increased during US trading hours. SHFE base metals are expected to edge higher on Friday.

The closely-watched US nonfarm payrolls report is not expected to come out positive on Friday given a slew of disappointing economic data announced earlier, and the lingering Ukraine crisis also will leave markets in a wary mood. LME lead prices are forecast to move between USD 2,120-2,150/mt, and the most active SHFE 1404 lead contract is set to fluctuate between RMB 13,760-13,860/mt. In China’s physical lead markets, mainstream traded prices will be between RMB 13,700-13,800/mt on Friday.