SMM Lead Market Morning Review (2014-9-18)

SHANGHAI, Sept. 18 (SMM) – The US Federal Reserve pledged on Wednesday that it will keep federal funds rates extremely low for a “considerable time” following the end of the bond-buying program. In response, the US dollar index surged to a refreshed high in four years, weighing base metals down.

LME lead sank overnight to USD 2,098.5/mt after starting at USD 2,133/mt, and rebounded slightly at the tail of the trading to end down USD 26/mt, or 1.22%, at USD 2,107/mt. The price of the soft metal has found support at the USD 2,100/mt mark. Trading volumes shed 1,672 lots to 3,242 lots, and positions shrank 4,328 lots to 129,853 lots. Meanwhile, LME lead inventories lost 25 mt to 225,650 lots.

Lead for October delivery on the Shanghai Futures Exchange, the most active contract, opened Wednesday’s night session at RMB 13,930/mt, and then advanced to RMB 14,020/mt. The price of the SHFE 1410 lead contract finished down RMB 50/mt at RMB 13,985/mt. During the night session, trading volumes for the most active contract totaled 3,102 lots, and positions added 526 lots to 17,272 lots.

The Fed cut another USD 10 billion in its monthly bond-buying program to USD 15 billion and pledged to maintain extremely low federal funds rates for an extended period of time after ending the stimulus program. Most market participants expect the Fed to lift interest rates for the foreseeable future although the statement on Wednesday was little changed from that in July’s policy meeting.

US CPI fell 0.2% MoM in August, down for the first time since April 2013, due partly to falling energy prices and the global economic slowdown. As the inflation remains muted, the Fed may put the record low interest rate in place for a longer period of time even after ending the asset purchases in October.

Three surveys conducted by ICM, Opinium and Survation revealed that support for Scottish independence reached 48%, compared with 52% backing for the union. The British pound leveled out on Wednesday since investors began buying the currency in the light of a higher percentage of Scots favoring the union.

The euro zone’s final CPI for August grew at an annualized rate of 0.4%, higher than expectations and the initial reading. The inflation, however, was still far below the European Central Bank’s 2% target, adding to concerns over deflationary risks in the single currency area.

Chen Yulu, an adviser to the People’s Bank of China said on Wednesday that the government hasn’t reached the point of needing to decide whether to drop interest rates. He added that further targeted RRR cuts and bond financing should be introduced to support the agriculture sector, small companies, low-income housing, and technology renovation. Meanwhile, reports that the PBOC channeled RMB 100 billion of liquidity to China’s five biggest state-owned banks have yet been verified, dashing investor hopes of stimulus measures by the Chinese government.

The US dollar index rose 0.65%, while the euro fell 0.73% against the greenback. Major world shares closed with gains. LME base metals dropped across the board.

A stronger US dollar is expected to put a lid on base metals on Thursday. LME lead is expected to move between USD 2,090-2,110/mt, and the most active SHFE 1411 lead contract is set to hover between RMB 13,900-14,000/mt. In China’s physical lead markets, traded prices should be in a RMB 13,750—13,900/mt band on Thursday.