US to Further Loose Monetary Policy on Disappointing Employment Data

SHANGHAI, Aug. 9 (SMM) – The US announced a series of employment data on August 6th, and the disappointing employment data indicates no improvements in the nation’s labor market, adding to market concerns over a possible double-dip recession in the world’s largest economy. SMM believes that the US Federal Reserve will very likely pursue additional efforts to further loosen monetary policy due to the weak employment data, and this will likely help base metal prices sustain its rising pace in the short term.

Disappointing US Employment Data Adds Worries Over Economic Outlook
On August 6th, the US Department of Labor announced that the non-farm payrolls dropped 131,000 in July, well above economists projections of 65,000. The unemployment rate held steady at 9.5% in July, and economists were expecting it to edge higher to 9.6%. The US private employers added 42,000 jobs in July according to ADP and Macroeconomic Advisers, slightly more than economists forecast of an increase of 30,000 jobs. Despite of increases in private-sector hiring, the weak labor market remains a major obstacle to the US economic recovery. According to the statistics, the US large-size companies posed no increases in hiring in July, and medium-size enterprises increased jobs by 21,000, and payrolls in small-size companies grew 21,000. In July, the US services sector increased 63,000 jobs, while factory jobs lost 6,000. Those employment reports underscore a weak recovery of the US labor market, and with no signs of improvement in the US jobless data in over six months. Following the end of census work, approximately 143,000 temporary workers will lose their jobs, and the tepid increases in private-sector hiring will be offset by declines in government jobs, contributing little to the high unemployment rate. The weak employment data also add to market fears about a possible double-dip recession in the US economy, and increase the possibility that the US Federal Reserve will further loosen its monetary policy.   

Improving Euro-Zone Economy Drives Market Risk Appetite Higher
The euro-zone economic data was positive recently. Figures released on August 5th show the orders in manufacturing sector in June surged by 3.2% on a monthly basis in Germany, and the German Ministry of Economic Affairs officials said the 2Q orders improved significantly. Stronger manufacturing sectors in Europe and better-than-expected results of stress tests on European banks helped drive the euro-zone currency higher, and the euro will likely strengthen significantly. The euro has posted gains of approximately 12% against the US dollar since early June, and SMM predicts the euro will extend gains in the following several weeks. In response, the US dollar index set a new low since April 14th, 2010, and the US economic recovery is slowing, which may prompt the Federal Reserve to take the quantitative easing policy. As a result, the US dollar will likely weaken further, and the improving euro-zone economy may drive market risk appetite higher. 

Base Metal Prices still Have Room to Rally Further
According to data released last weekend from the US Commodity Futures Trading Commission (CFTC), non-commercial long positions for the US refined copper were 37,994 contracts, and were 35,846 contracts in the previous week, up 2,148 contracts on a weekly basis. Non-commercial net long positions were 12,960 contracts, up 1,710 contracts from a week earlier and up 10,775 contracts from a month earlier. Although those data only reflected a small part of global metal market, the direction of position from world’s most active investors is clearly seen. Base metal prices fluctuated upward at a stable pace last week. SFHE copper for delivery in three months hit a three-month high, but met resistance to climb further on selling at prices above RMB 58,000/mt. With regard to technical indicators for SHFE copper, a steadily rising trend is available on the 10-day moving average and MACD is continuing to move upward, while KD is slightly downward. SMM believes SHFE zinc prices have led this round of rebounds, with further upward momentum available, and SHFE aluminum is rebounding slightly. The overall SHFE base metal prices are still on an upward track, but the growing pace has slowed down to certain extent. In general, SMM believes that major base metal prices will climb further in the near future.

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