Traders and clerks react on the floor of the London Metal Exchange in the City of London February 14, 2012.
Credit: Reuters/Luke MacGregor
SHANGHAI |
SHANGHAI (Reuters) - Copper hit one-week lows on Thursday after investors saw their hopes for more aggressive stimulus measures by the U.S. Fed dashed and worried Spain's borrowing costs would soar, flagging the risks of shaky euro zone finances to the global economy.
While most investors expected the latest HSBC China Flash Purchasing Managers Index to fall under 50 again in June, the seven-month low number of 48.1 confirmed that economic growth in the world's top metals consumer was still slowing.
Three-month copper on the London Metal Exchange dropped 1.4 percent by 0416 GMT to $7,437.50 a metric ton, its cheapest level in a week after falling 0.8 percent on Wednesday.
The most-active October copper contract on the Shanghai Futures Exchange fell 0.9 percent to 54,400 yuan ($8,600) a metric ton by its midday close. It hit a low of 54,260 yuan earlier in the session, its lowest since June 14.
"Commodities are down mostly due to disappointment that the Fed did not introduce another quantitative easing program," said a trader based in Shanghai with an international firm.
The U.S. Federal Reserve on Wednesday announced it was expanding its "Operation Twist", dashing hopes of some who were betting on a more aggressive quantitative easing program.
The central bank will sell $267 billion worth of short-term securities to buy longer-term ones to keep down long-term borrowing costs. The program, which was due to expire this month, will now run through the end of the year.
Adding to investor worry was expectations that Spain's borrowing costs will probably hit a new euro-era high at an upcoming debt auction, a few hours before it sheds light on the dire state of its weaker banks and possibly makes a formal request for European Union funds to rescue them.
Spain's problems underscored the International Monetary Fund's latest warning, in which it singled out the euro zone as the most immediate threat to global financial stability.
The IMF also drew attention to the risks to the world economy from the European debt crisis and excessive fiscal tightening in some rich nations, urging collective action to lower unemployment.
China's factory sector contracted for an eighth straight month in June, with export orders and prices turning in their weakest showing since early 2009, the HSBC Flash Purchasing Managers Index showed on Thursday.
The seven-month low index of 48.1 in June fell from a final reading of 48.4 in May and marked the eighth consecutive month that the HSBC PMI has been below 50, indicating contraction.
The new orders sub-index also fell in June and the new export orders sub-index dropped even more sharply, to 45.9, its lowest level since March 2009, the data compiled by Markit Economics Research shows.
While the gloomy data gave further evidence of slowing growth in China, traders said it was within expectations.
"I'm not particularly worried: it's natural for PMI to be down in June as we enter the summer season, which is traditionally the lull for industrial activity," said the trader.
"New export orders are weaker in June but if you consider how much they have grown in May, the overall picture isn't so bad."
On a positive note, Wall Street's top bond firms still see a 50 percent chance the Federal Reserve will begin a third round of quantitative easing (QE) to boost the U.S. economy even after it extended its current stimulus program on Wednesday.
The trader agreed that chances of a third round were high, "I believe QEIII is inevitable since major economies, including the euro zone and China, should be looking at further monetary easing, given current global economic circumstances."
Base metals prices at 0416 GMT
Metal Last Change Pct Move YTD pct chg
LME Cu 7437.50 -107.50 -1.42 -2.14
SHFE CU FUT OCT2 54400 -510 -0.93 -2.21
LME Alum 1903.00 -2.00 -0.10 -5.79
SHFE AL FUT OCT2 15660 -90 -0.57 -1.14
HG COPPER JUL2 335.20 -3.55 -1.05 -2.44
LME Zinc 1859.00 -8.00 -0.43 0.76
SHFE ZN FUT OCT2 14730 -210 -1.41 -0.44
LME Nickel 16920.00 -280.00 -1.63 -9.57
LME Lead 1872.00 -10.00 -0.53 -8.01
SHFE PB FUT 14930 -130 -0.86 -2.35
LME Tin 19200.00 0.00 +0.00 0.00
LME/Shanghai arb 709
Shanghai and COMEX contracts show most active months
^ LME 3-m copper in yuan, including 17 pct VAT, minus SHFE
third month
($1 = 6.3599 Chinese yuan)
(Reporting by Carrie Ho; Editing by Clarence Fernandez)
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