Shanghai copper fell more than 3 percent on Monday to its lowest level since October 24, dragged down by disappointing jobs data in the United States last week which raised new fears of global economic woes depressing demand for industrial metals. The US unemployment rate rose for the first time in nearly a year in May, data showed on Friday, aggravating fears of a global slump and pushing down yields on US and European debt to record lows.
The most-active September copper contract on the Shanghai Futures Exchange stood at 52,770 yuan ($8,300) a tonne at 0726 GMT, after tumbling to a trough of 52,330 yuan earlier in the session. "There is panic in the air over the health of global economics, as is evident from a sell-off in most assets," said Great Wall Futures analyst Li Rong.
Only hopes that the US data and signs of a slowdown in China, the world's biggest consumer of copper, would push governments to roll out new stimulus packages provided a little support. Across markets, there are signs of investors stampeding out of riskier assets. Equities around the world have plunged, while US stock futures pointed to more selling later in the day.
The euro edged back towards a near two-year low against the dollar on Monday. "Trading volumes and open interest both rose today, indicating the entry of fresh shorts," said a Shanghai-based trader with an international firm. Investors remain cautious over the financial turmoil in Europe, where Spain's government has delayed by at least a week the adoption of a new mechanism to ease the funding problems of its indebted regions, a government source said.
Fears over Spain's finances offset news of European Union paymaster Germany softening its drive for austerity across the euro zone on Friday. Berlin agreed to allow Spain more time to cut its deficit while it battles a deepening bank crisis, capital flight and recession. In China, the world's second-largest economy and the main engine of global growth in recent years, data is pointing to slowing growth.
The country's official purchasing managers' index - covering China's biggest, mainly state-backed firms - fell more than expected to 50.4 in May, its weakest reading this year, with output at its lowest since November 2011. Market analysts noted a lack of trading direction, with investors split in their forecasts of copper's outlook. "...some are closing their positions thinking that this feels too much like the financial crisis in 2008, while others are hopeful that governments around the world will roll out stimulus packages to combat their financial problems," said Great Wall's Li Rong.
A Reuters poll showed that Wall Street believes that a much weaker-than-expected US labour market alongside escalating financial turmoil in Europe raise the chance of the Federal Reserve intervening to protect the fragile US recovery. The Shanghai-based trader said he was bullish based on technical indicators. "I think copper is oversold and that we are treading on its support of 52,000 yuan now. But everyone seems to believe something different today."
One LME trader said with current uncertainties, copper could fall to as low as $6,400 in London or 47,700 yuan in Shanghai. "Unless the governments prove that they can do something to stop the loss of confidence in the markets, there will be a lot more downside to copper." The London Metal Exchange is closed for the Diamond Jubilee Holiday on June 4 and June 5.
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