Rekindled Concerns over European Banking Sector, Base Metal Prices Fluctuate at Highs

SHANGHAI, Sep. 8 (SMM) – The data out of the US employment market and service sector remains sluggish, and market concerns about the Europe’s banking sector were rekindled, sending stock markets in the US and EU, and international base metal markets lower. 

US Employment and Service Sector Data Remains Sluggish
According to data from the Department of US Labor on September 3rd, the US lost 54,000 non-farm jogs in August. The decline in non-farm payrolls was smaller than the 110,000 loss expected by the market. Although the drop was well below the projections, the US non-farm employment data dropped for a third straight month. In addition, the US unemployment rate edged higher to 9.6% in August from 9.5% in the previous two months. On the same day, The Institute for Supply Management (ISM) announced that the US non-manufacturing sector PMI data in August fell to 51.5% from 54.3% in July, a sign that activities in non-manufacturing sector have slowed down. Although a reading of PMI above 50% indicates expansion in the non-manufacturing sector remains, the PMI data came in lower than market expected. SMM believes that falling employment data and unfavorable performance in service sectors will likely promote the US Federal Reserve to take new measures to stimulate economic growth and improve labor market.  

German Factory Orders Fall Significantly in July
The data released by the Economy Ministry in Berlin on September 7th shows that German factory orders fell by 2.2% in July on a monthly basis, due mainly to declines in domestic sales and export orders. Export orders fell significantly by 3.7% in July, while domestic sales dropped by 0.3%. Export orders from the 16-member euro-region economy fell by 6.1% compared with June levels, while export orders from other countries outside the euro-region economy declined by 1.9%. According to the estimates of economists in a previous survey, German factory orders in July would rise by 0.4% on a monthly basis. The non-adjusted index for orders in Germany grew at a pace of 14% in July on a yearly basis, sharply down from a 28.5% increase seen in June, indicating the recovery of Europe’s largest economy is faltering after strong growth in 2Q.   
 
Japan’s and Australia’s Central Banks Keep Interest Rates Unchanged, Boosting US Dollar
On September 7th, the Bank of Japan and the Reserve Bank of Australia announced to keep interest rates unchanged as expected. The Bank of Japan said it will take more measures to hamper the economy from faltering if necessary, while the Reserve Bank of Australia said current interest rate level is appropriate, and said both the short-term economic growth and inflation rate are near its forecasts. SMM believes the Bank of Japan and the Reserve Bank of Australia will likely continue the loose monetary policies in view of a slowdown in European economic growth and concerns over the pace of US economic recovery. The modest statements of both banks helped boost the US dollar which has weakened since the start of this week, with the US dollar index returning to a recent high.  
 
Banking Crises Reappear in Euro Zone
Wall Street Journal released a survey about results of the stress test on banking industry in Euro zone on September 7. The report revealed that part of the banks did not provide real conditions of government bonds held by them, and some banks even concealed certain bonds held by them. This news made investors cast doubt over reliability of the stress test, kindling investors’ risk aversion sentiment. Besides, it also leaded to fluctuations in stock and commodity markets on September 7, increasing risk aversion sentiment in the market. The US dollar index is advancing towards 83, which is the top level in recent correction range, weighing on equity and commodity markets. 
 
Base Metal Prices to Fluctuate Widely for the Foreseeable Future
The US equity markets closed with losses on September 7 due to negative economic data and strong US dollar index after rallying for a fourth straight day. Dow Jones industrial average index fell by 107.24 points to 10,340.69 points, down 1.03%, ending a four-day’s rally, with financial indexes experiencing largest decline. Shanghai Stock Exchange Composite index experienced corrections after hitting 2700 points, dragging down base metal market. Some investors began to lock profits after recent base metal price surge. SHFE copper for delivery in three months has rebounded from RMB 48,800/mt to RMB 60,620/mt in recent three months, up by 25%, and SHFE aluminum and zinc have also climbed significantly. Since fundamentals haven’t changed significantly, profit-taking by long positions immediately occurred when market trend was shifted, leading to current price fluctuation of base metals.

SHFE copper prices fell back right after breaking through the RMB 60,000/mt mark, as evidenced by technical movements of MACD index. Meanwhile, copper prices fell after hitting the top Bollinger band. Therefore, technical indicators indicate that copper prices will have limited upward momentum to rally in the short term, and copper prices may slip further. Close attention should be paid to whether or not copper prices can stand above the 10-day moving average. If support is available at the 10-day moving average, copper prices will stabilize at around RMB 60,000/mt, and will keep its rising track in the medium term, or else copper prices will likely experience corrections in the price range seen in August.

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