FX:Copper surges over 2% on hopes for ECB, Fed, China stimulus
Forexpros - Copper futures surged during European morning hours on Wednesday, gaining over 2% as investors hung on to hopes for action by global central banks and other authorities to stimulate growth and boost the world economy.
On the Comex division of the New York Mercantile Exchange, copper futures for July delivery traded at USD3.359 a pound during European morning trade, surging 2.15%.
It earlier rose by as much as 2.35% to trade at a three-day high of USD3.363 a pound. Prices touched a seven-month low of USD3.238 a pound on June 4.
Finance ministers from the Group of Seven industrialized nations held a teleconference call on Tuesday to discuss the euro zone's escalating debt crisis, however no major agreements or plans were formed.
Markets now shift their attention to the European Central Bank’s monetary policy meetings later in the day.
Although the market consensus is that it will hold its key interest rate unchanged at 1.0%, there is some speculation by market players that the ECB could announce liquidity injections in to Europe's troubled financial system.
Others expect the central bank to renew its suspended government bond-buying program to help ease pressure on Spain’s rising borrowing costs.
In addition, Federal Reserve Chairman Ben Bernanke will testify on Thursday before a congressional committee about the state of the U.S. economy.
The Wall Street Journal, citing interviews and Fed speeches, reported late Tuesday that the U.S. central bank is mulling new measures to stimulate growth in the world’s largest economy.
Charles Evans, president of the Chicago Federal Reserve Bank called earlier for aggressive policy easing in the U.S., citing the recent run of "soft" economic data.
Meanwhile, speculation that the People’s Bank of China could act to stimulate the economy and avoid a ‘hard landing’ provided further support.
State-run China Securities Journal wrote in a front page commentary that current conditions in China are “ripe” for a cut in interest rate, as inflation pressure is easing.
The Chinese economy is still seeking a bottom, and some indicators show that waning demand is not just continuing but also worsening, the paper said.
China is the world’s largest copper consumer, accounting for almost 40% of world consumption last year.
Copper prices have been on a rapid decline since the start of May, amid growing fears over an escalating debt crisis in the euro zone and a deeper-than-expected slowdown in China.
Comex copper prices lost nearly 12.5% in May, the biggest drop since December 2008. Prices are more than 27% below last year's record high of USD4.648 a pound.
A deeper slowdown in China, the world’s second biggest economy, would impair a global expansion that is already faltering because of the implementation of harsh austerity measures in Europe.
Copper is sensitive to the global economic growth outlook because of its widespread uses across industries.
Elsewhere on the Comex, gold for August delivery rallied 1.1% to trade at USD1,634.55 a troy ounce, while silver for July delivery soared 2.75% to trade at USD29.19 a troy ounce.
