SMM Lead Market Morning Review (2014-3-19)

SHANGHAI, Mar. 19 (SMM) – The geopolitical crisis in Ukraine overnight didn’t further escalate, while US economic reports also showed some improvement, signaling impacts of adverse winter weather was receding. With regard to the upcoming US Federal Reserve’s policy meeting, markets expected the Fed to announce another USD 10 billion reduction in its monthly bond-buying program. In this context, market risk appetite grew, with gold and silver prices closing lower and LME base metals prices rising across the board. LME lead prices overnight hovered above the 5-day moving average after starting at USD 2,056/mt, and rallied at the tail of the trading to end up USD 23.75/mt or 1.15% at USD 2,080.75/mt. Trading volumes gained by 62 lots to 4,044 lots, positions contracted by 3,198 lots, and LME lead inventories shrunk by 400 mt to 201,675 mt.

With respect to the Ukraine crisis, President Vladimir Putin signed treaties to absorb Crimea and the port city of Sevastopol into Russia. Putin said the referendum in Crimea was legal and fully complied with international law norms. In response, the US and EU planned to adopt more sanctions on Russia to further isolate the country economically and politically. The US and EU only froze assets of Russian officials thus far considering EU’s reliance on resources in Russia. Stock market increased with risk appetite on the rise, while gold dropped.

The US CPI climbed a mere 0.1% MoM in February, which was right in line with expectations. Year-over-year, prices were up 1.1%, but the data are believed to exert limited influence on result from the Fed’s policy meeting. The US housing starts decreased 0.2% to a seasonally adjusted annual rate of 907,000, lower than the 910,000 expected. However, building permits were reported at 1.018 million, well above the 960,000 forecast.

In Europe, the ZEW’s current conditions index for Germany and euro zone both picked up, but ZEW Economic Expectations declined, reflecting doubts over euro zone recovery and the impact of the Ukraine crisis.

In China, the continuous bond repurchases by PBOC indicated ample money supply. However, latest data showed China’s new forex receipts hit the lowest since last September at RMB 128.25 billion, down markedly from January’s RMB 437.4 billion. This may presage tighter liquidity conditions. Among the 70 medium and large cities in China, four of them reported falls in prices for new commercial residential buildings and nine of them saw the prices flat, according to data from the National Bureau of Statistics. Home prices in 57 were still rising. Thus, it may be premature to speculate whether housing market will collapse.

The US dollar index continued to fall Tuesday, while LME base metals rose across the board.

Investors should keep an eye on developments of the Ukraine dispute, minutes of the Bank of England, UK jobs data, and US Q4 current account report on Wednesday. LME lead prices look set to test resistance at the USD 2,100/mt mark with the help of technical indicators and dip-buying activity, and should move between USD 2,070-2,100/mt. The most active SHFE 1404 lead contract prices are expected to fluctuate between RMB 13,590-13,680/mt. In China’s physical lead markets, traded prices will be mostly between RMB 13,600-13,750/mt on Wednesday as downstream purchasing activity should improve with a rebound in lead prices.