RTRS: Copper dips on strong dollar; shrugs off rate cuts
(Reuters) - Copper dipped on Thursday on a stronger dollar, retreating from gains after a surprise rate cut by China and a similar move by the European Central Bank that had been widely expected.
Metals initially climbed after China's second rate cut in a month, with investors hoping it would revive declining growth and metals demand in the world's biggest consumer of raw materials.
But a slide in the euro against the dollar to a one-month low pressured metals priced in dollars, making it more expensive for investors in other currencies.
The slide came after the ECB cut interest rates to a record low but steered clear of more dramatic measures such as buying government bonds or flooding banks with fresh liquidity.
Three-month copper on the London Metal Exchange fell 0.89 percent to $7,656 a tonne by 10.34 a.m EDT after earlier rising as much as 0.8 percent to a session high of $7,790 after the Chinese rate cut. Aluminium fell 0.61 percent to $1,944 a tonne.
"The market is trying to hunt for direction and using the same data to justify prices going one way or the other. It shows how uncertain the market is," said Standard Bank analyst Leon Westgate.
"OK the Chinese cut rates (but) it takes several months to feed through, and the ECB has done what's expected so the focus has switched back to non-farm payrolls tomorrow."
U.S. data out earlier indicated Friday's non-farm payrolls report might beat forecasts. The data showed private employers added a surprise 176,000 jobs in June, while the number of Americans filing new claims for unemployment benefits last week fell by the most in two months. But analysts said a good number might dissuade the Federal Reserve from easing monetary policy further.
Copper has rebounded about 4 percent since last Thursday, lifted by a European agreement on a surprise euro zone rescue deal and expectations that weak economic data would lead to fresh stimulus measures by global central banks.
Some investors may have been disappointed at a lack of further stimulus measures by the ECB.
"Today's ECB interest rate cut does little to alter the bleak economic outlook and the bank is unlikely to announce any bolder unconventional measures for now," said Jennifer McKeown, senior European economist at Capital Economics.
Investors are also keeping an eye on Friday's key monthly U.S. jobs report for clues on whether the Fed will take additional easing steps. Non-farm payrolls were expected to see an addition of 90,000 workers in June, with the unemployment rate holding steady at 8.2 percent.
CHINESE RESTOCKING
In physical markets, opportunistic restocking in China has helped support copper prices and keep the spread of Shanghai's July contract over its October contract in backwardation since early May.
Prices may also be bolstered by a small pick-up in downstream copper demand. In a note on Thursday, Barclays Commodities Research said demand was solid for transport-related copper and improving for copper wire order books in China, but warned that sentiment remained bearish, which means fewer long positions by investors.
"Risk to prices in the near term is from positioning and policy, either of which would trigger a sharp short-covering rally. However, we would view these gains as difficult to sustain without an improvement in economic activity," it added.
In China, Shanghai aluminium was one of the session's best performers, with the most active Shanghai contact recovering 5.1 percent by the end of the day from a three-year low it posted last week as Chinese traders piled back in believing it was oversold.
"Despite problems of overcapacity in China, aluminium looks one of the most attractive to traders now among the industrial metals at these low price levels," said a metals buyer.
In other metals, LME nickel fell 0.59 percent to $16,820 a tonne and zinc shed 0.9 percent to $1,880.75 a tonne.
Tin lost 0.52 percent to $19,050 a tonne and lead traded 0.67 percent weaker at $1,893.25 at tonne. Metal Prices at 10.38 a.m. EDT.
