SMM Lead Market Morning Review (2014-10-20)

SHANGHAI, Oct. 20 (SMM) – LME lead hovered last Friday largely at RMB USD 1,985-1,990/mt after starting at USD 1,991/mt in Asian trading hours. During the European and US trading session, the price of the soft metal surged to close up USD 43.5/mt at an intraday high of USD 2,032.5/mt. Trading volumes shed 4,672 lots to 3,988 lots, but positions gained 2,824 lots to 122,451 lots. LME lead inventories contracted 500 mt to 225,050 mt.

Lead for December delivery on the Shanghai Futures Exchange, the most active contract, opened last Friday’s night session at RMB 13,655/mt, and then fluctuated at RMB 13,600-13,650/mt before ending up RMB 125/mt at RMB 13,650/mt.

It was reported over the weekend that the People’s Bank of China (PBOC) will issue loans of about 300 to 400 billion yuan via Pledged Supplementary Lending (PSL) to several commercial banks this week. This illustrates that the PBOC intends to inject liquidity into financial markets to prop up the Chinese economy after the real M2 growth fell short of its target, helping boost market sentiment. Meanwhile, China launched residential mortgage-backed securities (RMBS) to support its sagging property market, which is expected to free up RMB 10 trillion of capital for lending and facilitate home buyers to obtain loans. Nevertheless, investors should watch closely risks of financial bubbles given fallouts from US version of RMBS. The 4th plenary session of 18th CPC Central Committee will commence on Monday.

US housing data were positive, while the University of Michigan’s preliminary consumer sentiment index rose to a new 7-year high of 86.4 in October. The US dollar index closed last Friday at 85.21.

Bond yields in the euro zone surged amid increasing investor worries over the health of the single currency area’s economy following dispiriting German economic indicators and a downgrade of France’s debt rating. However, the yields were subdued subsequently by expectations that the European Central Bank will unveil another round of stimulus measures.

Crude oil finished up 0.06% at USD 82.75 a barrel, but gold fell 0.18% to end at USD 1,239/oz. US stocks rose sharply, with the Dow up 1.63%. LME base metals closed with gains across the board, with copper and zinc up 0.63% and 0.76%, respectively.

Base metals markets should be dominated by optimism on Monday following reports of liquidity injection by the PBOC and due to encouraging US economic data. LME lead is set to hover at USD 2,030-2,060/mt, and the most active SHFE 1412 lead contract is expected to fluctuate at RMB 13,620-13,720/mt. On China’s physical lead markets, traded prices should range between RMB 13,600-13,750/mt on Monday.