SHANGHAI, Mar. 20 (SMM) – The US Federal Reserve agreed overnight to dial down a further USD 10 billion in its monthly asset purchase program and indicated interest rate rises in 2015, showing that the Fed is still bullish on US economy. In this context, LME copper prices closed up 1.45%, with bearish sentiment waning and increasing shorts liquidating positions in base metals markets. In response, LME lead prices rebounded to finish up USD 1.25/mt, or 0.06%, at USD 2,082/mt, rising for a fourth trading day in a row. Trading volumes gained 2,208 lots to 6,252 lots, positions shed 984 lots to 135,561 lots, and LME lead inventories contracted 625 mt to 201,050 mt.
Janet Yellen wrapped up her first policy meeting as the Fed Chief Wednesday. Although the decision to continue trimming asset purchases was within expectations, it’s worth noting that the Fed cut its unemployment forecast and slashed its economic growth forecast for 2014 and 2015. In addition, the Fed has updated its forward guidance, explaining that the new guidance is likely to be “be less specific and more ambiguous and point to a variety of indicators”. Projection for fed funds target rate was also raised – a 1% rate by the end of 2015 (up from 0.75%) and a target closer to 2.5% by the end of 2016 (instead of 1.75%). The US dollar index gained traction after the meeting, rising 0.94%.
The euro zone construction output jumped in January by 1.5% MoM and 8.8% YoY. The number of job losses in UK dropped 34,000, higher than the 25,000 forecast, and unemployment rate fell to 3.5% as expected. The jobless rate measured by International Labour Organization methods was 7.2% in the three months through January, the same as in the final quarter of 2013.
Liquidity conditions tended to tighten in China given declining new forex receipts and PBOC’s continuous bond repurchases. Overnight repo rate increased 74 basis points Wednesday to 2.8, while seven-day rate climbed 51 basis points to 3.41. Shibor rose across the board. However, markets should not be over-pessimistic as nearly RMB 400 billion of repurchase agreements are due to mature in for the month ahead.
In other news, China Banking Regulatory Commission announced to revise rules for supervision of small and medium financial institutions in rural areas as a part of China’s financial reforms. Shanghai Stock Exchange also decided to loosen restrictions on shareholdings and investment scope of institutional investors.
Most indexes in European and US stock markets dropped Wednesday. All base metals, except aluminum and tin, posted increases on the London Metal Exchange.
Pressured by a rally in the US dollar index and declines in European and US stocks, LME lead prices should encounter appreciable resistance at USD 2,100/mt, and move between USD 2,070-2,105/mt on Thursday. The most active SHFE 1405 lead contract prices are expected to meet resistance at the 30-day moving average, and fluctuate between RMB 13,700-13,800/mt. In China’s physical lead markets, traded prices will be mostly between RMB 13,600-13,750/mt on Thursday due to stronger buy-the-dip mentality.