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The bears were back in the driving seat Monday, weighed by renewed QE tapering dollar strength and ongoing jitters surrounding credit liquidity in China, triggering a 6.3% fall in the Shanghai Shenzhen CSI 300 Index.
The rout in Chinese equities triggered renewed sell in the metals, leading copper, aluminium and nickel sank to fresh multi-year lows while lead and zinc both touched their lowest in two months. Heavy turnover was seen across the day with some 27,829 lots of copper changed hands on Select by the close.
Despite the weakness the metals recovered back from their lows as comments from Federal Reserve Bank of Dallas President Fisher appeared to sooth some of the ruffled feathers. Leading the metals to finish down a net 1.8% by the close. The precious metals were off a net 2.2% by the close.
Fisher said investors shouldn’t overreact to the Fed’s plans to reduce the pace of asset purchases, suggesting investors behaved like “feral hogs” in response to Bernanke’s comments last week.
In wider market the Dow stood down 0.9% by the close, have been down as much as 1.7%. The Dollar Index was up 0.5% at the day’s peak but eased in response to Fisher’s comment, settling little changed on the day.
Markets overnight have continued the broadly negative tone with the Shanghai Shenzhen CSI 300 off a further 2.1% at the time of writing; the Nikkei is off 1.8% while the HSI is up 0.2%. The metals have seen a somewhat more mixed start with copper off around 0.2% as of 07:20 with 7,859 lots changing hands on Select; gold is off 0.1% while the PGM have edged higher on bargain hunting.
While conditions in China remain a major feature players today will likely pay close attention to the days data releases, which predominantly focus on the US and will be used to gauge the Fed’s tapering view.
Of particular focus will by the Conference Board Consumer Confidence reading, forecast at 75.6, Durable Goods Orders and New Homes Sales, which are expected to improve to a pace of 462,000 units from the 454,000 in May. The days other data includes the S&P/CS HPI, House Price Index and Richmond Manufacturing Index.
While oversold the question now is whether the metals have reached a level sufficient to entice significant buying interest? However, given the potential credit issues facing China, recent economic indicators from the country and need to cover margin requirements we maintain a bearish outlook short-term.
Should copper close below the October ’11 low ($6,635/t) we could see a deeper move to the $6,300-6,400/t area initially although the October 2010 low of $6,037.50/t could come into play. Gold meanwhile is homing in on the $1,250/oz level although there could be a move to $1,087/oz – the 50% retracement level from the 1999 low to the September 2011 high.
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