‘Walking Dead’ market: Why the rally keeps going

Call it the Zombie Market, if you will, a staggering, stumbling, somnambulant thing of macabre beauty that sustains slings, arrows and shotgun blasts but still marches forward.


Jeff Kleintop, chief market strategist at LPL Financial, is more succinct and culturally aware: He calls it the “Walking Dead” market, after the wildly popular, zeitgeist-y AMC zombie series.


Instead of the perils zombies face to survive in a post-Apocalyptic world, the “walkers” of Wall Street must fend off the many macro and micro economic threats to their existence.


Negligible economic growth? No sweat. Recession in Europe? Nobody cares. China slowdown? Big deal. Near-zero revenue growth? Someone else’s problem. Federal Reserve tapering? Who needs ’em?


Kleintop bemoans the lack of Emmy nominations for “Walking Dead,” and said the stock market,—like the shows zombies—doesn’t get enough credit for defying its many detractors.


“This unkillable stock market rally seems to get no respect. US stocks have been snubbed by investors this year,” he said. “The S&P 500 has continued the strongest bull market since WWII despite all the shots fired at the market this year.”


In addition to the aforementioned zombie-slayers, he also cited the “fiscal cliff” tax increases and sequestration spending cuts in Congress; zooming oil prices, European debt woes; rising interest rates, geopolitical turmoil and low market participation.
 
“While it has been impossible to kill so far this year despite all the shots fired at it, this is no mindless and shambling rally,” Kleintop contended. “Stocks have deliberately moved past these events that did not stop the still-beating heart of economic growth in the United States.”


About that last point: The “beating heart” has been less a beat and more a fading tap lately.


Second-quarter gross domestic product growth likely will register below 1 percent after a disappointing 1.8 percent in the first quarter.


US investors, meanwhile, are bailing on bonds but not exactly flocking to stocks either. A record outflow from fixed-income funds in June saw that money go not to equities but rather en masse—to the tune of nearly USD 110 billion—into savings and money market funds.


But those are just two more to add to the list of demons this market has vanquished and may yet again, in Kleintop’s view.
He advised investors to stay tuned for a raft of data points likely to influence the markets ahead.


“A volatile second half in the stock market is likely, but so too are potential gains as the US economy continues to post growth of about 2 percent, resulting in opportunities to buy on the dips,” he said.


Defending currencies? More like digging a hole

Emerging market policymakers who have in recent times tightened monetary conditions in an effort to shore up their currencies, may be digging themselves into a hole, economists have warned.


Brazil, Indonesia and most recently India have tightened monetary policy in the face of rapid currency depreciation stemming from worries over the Federal Reserve scaling back its extraordinary monetary stimulus.


But there are concerns that the moves will do little to support currencies with economic growth suffering as a result.


“If you want to keep capital onshore, raising rates is one way to attempt to do that. But under these circumstances of U.S. monetary tightening, I think it’s useless,” said Uwe Parpart, chief strategist and head of research, Reorient Financial Markets told CNBC.


 “Once the outflows start, policymakers can raise rates all they want, but they are just going to make the economic situation worse and outflows will accelerate. I don’t understand the thinking of central bankers, this is a measure of desperation which is not well thought out,” he added.


The Brazilian real, Indonesian rupiah and Indian rupee have declined 10 percent, 3 percent and 7.2 percent, respectively, against the U.S. dollar since Fed Chairman Ben Bernanke started talking about tapering on May 22. These currencies have been vulnerable to heavy selling given worries about their large current account deficits.


 Despite aggressive intervention by the Brazilian Central Bank, the real has so far failed to respond to the tightening policies. The central bank has raised its benchmark rate by 125 basis points since April.


“The failure of the Brazilian real to rally in response to monetary policy tightening is disturbing. It is a bad sign for an emerging market currency when the central bank tightens policy and the currency depreciates sharply. It can signal a lack of faith in policy credibility,” said Nicholas Ferres, investment director at Eastspring Investments.


 A combination of higher interest rates and continued weakness in a currency would present a host of issues for an economy including tighter domestic liquidity conditions, higher costs to service U.S. dollar dominated debt and pricier imports.


Growth threat


Tightening monetary policy in a fragile economic environment also threatens to exacerbate the slowdown in economic growth, say analysts.


Brazil, Indonesia and India together account for 10 percent of global gross domestic product (GDP), thus a slowdown in their economies would have a material impact on global growth.


“This effective tightening of financing conditions across these countries does pose a downside risk to growth, exacerbating sluggish growth in India, Turkey and Brazil, while cooling down relatively strong growth in Indonesia,” said Rachel Ziemba, director, global emerging markets at Roubini Global Economics.


Credit Agricole on Monday warned that India’s monetary tightening could hit growth in Asia’s third largest economy.


“The Reserve Bank of India’s actions could lead to a sharp slowdown in growth; unless interbank market liquidity tightness abates soon, we will look to revise our growth and inflation forecasts,” the bank wrote in a report.


Last week, the Reserve Bank of India introduced a limit on the amount banks are able to borrow from the central bank at the benchmark interest rate of 7.25 percent. Above that limit, banks would be subject to higher rates of 10.25 percent.


Several banks have downgraded their growth outlook for India in the last week, with Nomura and Deutsche Bank both lowering their forecasts to 5 percent for the fiscal year 2014, from previous estimates of 5.6 percent and 6 percent, respectively.


More from CNBC


Wild Swings? Emerging Currencies Have It the Worst
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Look! Hot Money Is Fast Exiting Emerging Stocks

Gold regains some luster, has best day of the year

Gold prices jumped as the dollar slipped, giving the precious metal its best day of the year Monday and setting up for further gains.


U.S. gold futures for August delivery rose 3.3 percent, to a four-week high USD 1,336 a troy ounce, its best one-day gain since June 2012. The dollar index was down about 0.5 percent in afternoon trading, at 82.19.


“You’ve got technical momentum,” said RBC commodities analyst George Gero. “You have fund buying. You have physical need for gold in the forwards in Europe, and you have no willing sellers left because we had that selloff to below USD 1,200. Almost anyone who was a weak holder got out. On Thursday, there’s expirations, and that encourages short covering.”


Analysts expect the buying activity to spur more upside for now. Gold had been crushed as the dollar gained on expectations that the Fed tapering its USD 85 billion a month in bond purchases would drive interest rates up. The 10-year Treasury note, which had reached a recent high of 2.75 percent, was at 2.48 percent Monday.


 But as the Fed has tempered expectations for tapering to a gradual withdrawal with no hike in short-term rates, the dollar has pulled back and gold has found support. Gold, which entered a bear market in April, struck a low of USD 1,179 on June 28.


“What [Fed Chairman Ben] Bernanke’s been trying to do for the past few weeks is push the marketplace into the notion that tapering and the end of quantitative easing is going to be later rather than sooner,” said Jim Wyckoff, senior analyst at Kitco. “And I think he’s done a good job of convincing the marketplace of that. That’s what pressured the dollar, and it’s been a bit bullish for raw commodities.”


 Fed officials have assured markets that though they could start winding down the bond purchases by year-end, they will rely on economic data to determine their asset purchases and they have no intention of raising the Federal funds target rate anytime soon.


Traders said gold gained momentum after piercing USD 1,300, a level it had failed to break above over the last several weeks. Large speculative short positions also have been built up in gold as it declined. The Commodity Futures Trading Commission’s latest weekly data show that funds’ gold net-long positions rose 48 percent, increasing for the first time since the start of June as traders covered short positions.


Net longs also rose for silver, which gained 5.4 percent Monday.


 Gero at RBC said there has been strong buying interest in gold from China and Japan but that India, the biggest market, is still sidelined because of new taxes on gold and a weak currency.


On Monday, the Reserve Bank of India moved to tighten gold imports again by restricting bank holdings of the metal. It asked all nominated banks and agencies to export at least a fifth of every lot of imported gold in all forms and to make it available only to local jewelers. India has been struggling to contain its record current account deficit.


“The fact that we settled above the April 15 low of USD 1,321 is bullish,” said Kevin Grady, president of Phoenix 1,335 we’re sitting on is a very key area. Wyckoff said the next upside target is USD 1,350.


“I think the gold market today gained some good upside technical momentum,” he said. “The price action negated a 9.5-month-old down trend on the daily chart. Also, we have a fledgling 3-week-old uptrend,” he added. “It’s a near-term bottom. We’ll have to wait and see if it’s any kind of a longer-term bottom. Certainly the bulls have gained important near-term technical momentum.”


More from CNBC
How to trade the gold bounce: Pro
Why silver may not outshine gold after all

Russia Fin Min: Ruble devaluation ‘not in our interest’

Russia`s finance minister told CNBC it was not in the country`s interest to devalue the ruble, although last month he argued that a weaker currency would help boost flagging economic growth.


Speaking at the G-20 meeting of finance ministers in Moscow, Anton Siluanov said neither Russia`s finance ministry nor its central bank had plans to interfere with the currency.


“We have no aim to weaken or strengthen the ruble. We are coming from – and are in – the situation of having a balance of demand and supply on ruble liquidity,” he said on Saturday.


“It`s not in our interest to have sharp fluctuations of the ruble. We are for the ruble to be fluctuating within the narrow corridors that have been created.”


Siluanov said in June that he would welcome a weaker ruble to boost Russia`s weakening economy.



Russia`s economy grew by 1.6 percent year-on-year in the first quarter of 2013 – its slowest since 2009. The government forecasts that gross domestic product will come in at 2.4 percent in 2013, a significant fall from 2012`s 3.4 percent.


Reforms?


Russia, one of the world`s largest energy exporters, has been urged to boost its economy by diversifying away from its heavy reliance on the energy sector.


Siluanov told CNBC these reforms would not be stalled by a recent rise in oil prices – which hit USD 108 per barrel last week.


“All oil and gas revenues will go into the reserve fund,” he said. “That`s why the rise of revenues on account of market-determined prices, are not going to be reflected on spending increases. The rise of oil prices does not relax in our undertaking of the intended structural reforms.”


The Kremlin has been heavily criticized by some in recent days for the sentencing of Alexei Navalny, a protest leader and one of President Vladimir Putin`s biggest critics. Navalny was sentenced to five years in prison, a move that was slammed by human rights activists, before being released on bail on Friday pending appeal.


But Siluanov said the international perception of Russia had not been damaged by the news.


“For the investors, the main thing is the economic policies of the government,” he said. “The economic policies remain the same. There are some events that happen in the world, but I don`t think they can influence, on the whole, the investment climate in Russia.”

‘All systems go’ after Abe’s big election win?

The convincing victory by Shinzo Abe`s ruling coalition in Sunday`s election helps pave the way for long-awaited economic reforms, but only time will tell whether Abe seizes the opportunity to transform the world`s third largest economy or follows the same path as predecessors and let reform efforts fizzle.


Abe`s Liberal Democratic Party (LDP) and its coalition partner, the New Komeito party, won at least 74 of the 127 seats being contested in the 242-seat upper house election , Japanese media reported early on Monday.


The election is significant because it means the ruling coalition now has a majority in both houses of parliament, making it easier to push through changes.


The win also raises the likelihood that Japan could get a leader who`s staying the course. Since former Prime Minister Junichiro Koizumi ended his five-year term in 2006, no leader has been in office for longer than 15 months.


“It`s all systems go now and the focus is very clear,” Jesper Koll, head of Japanese equity research at JP Morgan Securities, told CNBC Asia`s “ Squawk Box .” “The first six months of Abe`s rule was all about getting a cyclical upturn, now it`s going to be focused on getting a structural upturn so that Japan`s potential growth rate can be revised up.”



The benchmark Nikkei-225 (CBOE: .NKXQ) stock index edged up on Monday amid optimism that with the upper house election over, Abe can focus on implementing the final part of his three-pronged strategy to boost growth and end the deflation that has hampered Japan`s economy for years.


Aggressive monetary stimulus and fiscal spending have already helped give Japan`s economy a boost this year and economists say it`s the third part of Abe`s strategy of structural reforms that are key to the long-term economic outlook.


Potential reforms include joining the Trans-Pacific Partnership, a trade deal that is expected to pave the way for opening up sectors such as agriculture to foreign competition, reforming the corporate tax structure and introducing a consumption tax as well as labor market reforms such as trying to bring more women into the work force.


Japan watchers say there are two concerns. The first is that Sunday`s decisive election win will make Abe more complacent about delivering painful economic reforms or taking on vested interests within his own party. The second is that Abe will prioritize his nationalist agenda before economic reforms.


“We`ve had a very successful election; the problem is all these members [of parliament] have their own agenda and will they support the difficult and important structural changes Abe is talking about? This will be important,” said Stephen Nagy, an assistant professor at the Department of Japanese Studies at the Chinese University of Hong Kong.



According to HSBC Economist Izumi Devalier, Abe`s biggest challenge could come from within the LDP.


“Abe is in the best position to push through reforms since Koizumi,” she said. “But he does have to deal with vested interests. After this election, the LDP will have upwards of 400 members and voices on agriculture, labor [reform] are divided so his biggest enemies will be within his own party.”


She said one reason Abe was unlikely to put nationalist policies such as changing Japan`s pacifist constitution before economic reform was caution from the LDP`s coalition ally, the New Komeito, which could “rein in any nationalist impulses.”


Other Japan watchers pointed to the poor the track record of Japanese prime ministers, many of whom were hopeful of reforming the economy but ultimately failed. Japan has suffered from deflation for 20 years and its economic performance has generally been meager compared with its peers.


“You have to be very skeptical,” said Richard Jerram, chief economist at Bank of Singapore. “We`ve had every prime minister in the past 20 years, and there have been about 15, that have had a structural reform program. They`ve all promised and not delivered on that front.”

China manufacturing back in focus this week

HSBC`s flash estimate of the China purchasing managers` index (PMI) is likely to feature high on the list of data to be watched closely in Asia this week.


The week ahead also sees the latest inflation releases from Japan, Australia, Hong Kong and Singapore, while any comments from Japanese Prime Minister Shinzo Abe following Sunday`s election win for his ruling coalition to the upper house of parliament could also be in focus.


The HSBC PMI is due out on Wednesday and should provide the first clues of how the manufacturing sector is holding up this month.


The HSBC June PMI fell to a nine-month low of 48.2 from 49.2 in May, slipping further below the 50-mark that divides expanding activity in the sector from a contraction.


Data on China`s economy is much in focus for global markets as investors try to assess the extent of a slowdown.



“We would be surprised if the flash HSBC PMI wasn`t weak and it does come after the credit crunch in June,” Richard Yetsenga, head of global market research at ANZ, told CNBC Asia`s “Squawk Box” on Monday.


A credit squeeze for local lenders last month has raised concerns that tight liquidity conditions will spill over to the broader economy and undermine growth.


China releases its latest industrial profit numbers at the weekend.


Inflation watch


Hong Kong releases June inflation data Monday, followed by Singapore on Tuesday. Australia posts its second quarter consumer price index (CPI) on Wednesday and Japan publishes its latest CPI data on Friday.


“In Australia, June quarter inflation data to be released Wednesday are expected to show that inflation remains benign, likely setting the scene for another cut by the Reserve Bank of Australia when it meets in early August,” Shane Oliver, head of investment strategy and chief economist at AMP Capital, said in a note.



Any signs that Japan is moving out of deflation could cheer local markets and give further ammunition to Shinzo Abe and his radical plans to transform Japan`s economy.


Abe is scheduled to visit Malaysia, Singapore and the Philippines later this week.


Investors will be watching for potential comments from Abe on his long-term plans for Japan`s economy amid some concern that his strong election win at the weekend could reduce the incentive to initiate structural reforms.


Central banks in New Zealand and the Philippines are scheduled to meet this Thursday, while South Korea releases its second-quarter economic growth numbers the same day.


Analysts at Bank of America Merrill Lynch expect the Philippine central bank to leave its key rate unchanged at 3.50 percent


“We expect Korea`s GDP growth to improve to 1.9 percent year-on-year in Q2 from 1.5 percent in Q1 on strong construction investment and favorable base effects,” they added in a research note.

China PMI data in focus for Asia this week

HSBC’s flash estimate of the China purchasing managers’ index (PMI) is likely to feature high on the list of data to be watched closely in Asia this week.


The week ahead also sees the latest inflation releases from Japan, Australia, Hong Kong and Singapore, while any comments from Japanese Prime Minister Shinzo Abe following Sunday’s election win for his ruling coalition to the upper house of parliament could also be in focus.


The HSBC PMI is due out on Wednesday and should provide the first clues of how the manufacturing sector is holding up this month.


The HSBC June PMI fell to a nine-month low of 48.2 from 49.2 in May, slipping further below the 50-mark that divides expanding activity in the sector from a contraction.


Data on China’s economy is much in focus for global markets as investors try to assess the extent of a slowdown.


“We would be surprised if the flash HSBC PMI wasn’t weak and it does come after the credit crunch in June,” Richard Yetsenga, head of global market research at ANZ, told CNBC Asia’s “Squawk Box” on Monday.


 A credit squeeze for local lenders last month has raised concerns that tight liquidity conditions will spill over to the broader economy and undermine growth.


China releases its latest industrial profit numbers at the weekend.


Inflation watch


Hong Kong releases June inflation data Monday, followed by Singapore on Tuesday. Australia posts its second quarter consumer price index (CPI) on Wednesday and Japan publishes its latest CPI data on Friday.


“In Australia, June quarter inflation data to be released Wednesday are expected to show that inflation remains benign, likely setting the scene for another cut by the Reserve Bank of Australia when it meets in early August,” Shane Oliver, head of investment strategy and chief economist at AMP Capital, said in a note.


 Any signs that Japan is moving out of deflation could cheer local markets and give further ammunition to Shinzo Abe and his radical plans to transform Japan’s economy.


Abe is scheduled to visit Malaysia, Singapore and the Philippines later this week.


Investors will be watching for potential comments from Abe on his long-term plans for Japan’s economy amid some concern that his strong election win at the weekend could reduce the incentive to initiate structural reforms.


Central banks in New Zealand and the Philippines are scheduled to meet this Thursday, while South Korea releases its second-quarter economic growth numbers the same day.


Analysts at Bank of America Merrill Lynch expect the Philippine central bank to leave its key rate unchanged at 3.50 percent


“We expect Korea’s GDP growth to improve to 1.9 percent year-on-year in Q2 from 1.5 percent in Q1 on strong construction investment and favorable base effects,” they added in a research note.

Why Portugal has to ‘save itself’ by Sunday

Portugal’s government survived a vote of no confidence on Thursday, but the country is not out of the woods yet. A self-imposed deadline to come to an agreement over the country’s bailout looms on Sunday.


The defeat of the motion of no-confidence, which was tabled by the smaller Green party in Portugal, was the latest installment of a political drama that started with the resignation of two government ministers who opposed austerity measures two weeks ago.


The socialist party, which backed the vote of no-confidence on Thursday, must now work with the two ruling coalition parties to come to an agreement over 4.7 billion euros (USD 6.17 billion) in spending cuts and austerity measures to keep the country’s bailout on track until mid-2014.


Analysts told CNBC they were not so sure that the talks would succeed, and that a second bailout for Portugal looked increasingly likely.


“Whether talks succeed depends on how much both sides are willing to bend,” Jennifer McKeown, European economist at Capital Economist told CNBC. “It’s unlikely they can meet austerity measures that suit the government, opposition and the troika [of international lenders]. This whole process is unlikely to be resolved by Sunday.”


It’s likely Portugal will need more money and time, or both, McKeown added. “The longer the delay, the more the bond yields are going to rise and the greater the risks of a second bailout for Portugal, which I think is quite likely.”


The yield on Portugal’s benchmark 10-year bond was 7.06 percent on Friday. After the vote on Thursday, yields fell from 7.27 percent to 7.03 percent.


Investors have hoped that Portugal, which has been something of a success story so far in implementing reforms and spending cuts required by its 78 billion euro bailout, could exit its bailout program next year.


Emergency talks between the three main parties are continuing on Friday as part of a “national salvation” pact proposed by the Portuguese President, Anibal Cavaco Silva. He said on Thursday that there was the “serious will and determined effort to achieve an understanding, although we cannot ignore that it is a complex, difficult negotiation,” Reuters reported Cavaco Silva as saying after the vote.


“It’s possible that they’ll reach a solution but it’s not a certainty,” Chris Scicluna, head of research at Daiwa Capital Markets, told CNBC on Friday. “There would be some incentives for the opposition to force an early election now and I wouldn’t rule out a breakdown in these talks.” Scicluna told CNBC that Portugal would see its borrowing costs “blow up” and could jeopardize its full return to the bond market, scheduled for next year when the country hopes to exit its bailout program.


Mark Howden, managing director and head of consumers at Nomura, told CNBC that Portugal would struggle to regain full access to the bond markets next year.


“Ultimately they need another bailout, we’re in a situation where it’s going to be very, very difficult for them to come back to the markets as they’re supposed to. They’ll need some further assistance and it’s simply the terms under which that assistance is negotiated… we really could do without further political turmoil, frankly, because that just scares investors.”


Related CNBC link


Portugal’s bond market tanks as crisis deepens


Portugal Requests Delay of Bailout Review Due to Crisis


Weary Portuguese blame “irresponsible” leaders for crisis

Bernanke doesn’t understand gold, should we?

The recent volatility in gold prices has left not only investors and traders puzzled about what is going on with the precious metal.


“Nobody really understands gold prices and I don’t pretend to understand them either,” Federal Reserve chief Ben Bernanke told the Senate Banking Committee on Thursday in response to a question on why gold prices have been volatile.


As traders speculate whether battered gold prices can make a decisive push above the key USD 1,300 level or are headed for more pain, analysts say there’s another key factor for the gold outlook that is being overlooked: strong demand for gold from Asia.


Former US Mint Director Edmund Moy says the recent volatility in gold prices has distracted US investors from noticing the strong demand for physical gold, particularly from Asian investors.


“Lower gold prices have spurred even stronger demand by Asian investors. That has resulted in a huge transfer of physical gold from the US to Asian economies, especially China,” said Moy, who is currently the chief strategist at Morgan Gold, which sells gold coins as investments.


Gold has rebounded almost 9 percent from a near three-year low hit in late June on easing worries about an unwinding of US monetary stimulus. But after a fall of more than 20 percent this year, sentiment remains weak and analysts are not convinced the metal is a good long-term buy.


According to Moy, while electronic derivatives of gold such as exchange traded funds (ETFs), futures contracts are popular with Western investors, these proxies have not yet become a substitute for physical gold in Asia.


“If mediocre economic growth in the United States continues, expect the Fed to have great difficulty unwinding QE [quantitative easing] without inflation, which will cause US investors to seek physical gold again but with far less supply available,” said Moy.


 A shortage is expected to result from less supply coming on the market from gold miners due to prices being at or near production costs, he said, in addition to the current transfer of physical gold from the U.S. to Asia.


“Asian investors tend to hold on to physical gold and are generally reluctant to leverage or loan their gold out or sell when gold prices go up,” Moy said.


Asia’s gold affair


Andrew Su, CEO of Compass Global Markets, agrees that support for gold stemming from demand in Asia should not be underestimated.


“When gold hit USD 1,180 within the last couple of weeks, a lot people came in to support the price purely because that’s where production costs for gold are. I was in Hong Kong and Singapore recently, physical gold is drying up.” Su told CNBC Asia’s “Squawk Box” on Friday.


“We are seeing some consolidation (and) a reduction in volatility so I’m quite bullish about gold prices from these levels. We’re building long positions,” he said.


Gold prices were traded at USD 1, 286 per ounce on Friday. The yellow metal has been beaten down this year, as a benign global inflationary environment dented its appeal as a hedge against rising prices. Prospects for a scaling back of liquidity in the world’s largest economy, which has led to the rise of the US dollar, have also taken a toll.


Kelly Teoh, market strategist at IG Markets, expects the precious metal to trade in the range of USD 1,200- USD 1,300, noting that a breakout from these levels would provide a clearer signal of the longer-term direction.


Related CNBC links


Gold nears $1,300, but analysts say it’s not a ‘buy’


A ‘Tug of War’ That Puts a Floor Under Gold


What Bernanke’s testimony means for gold: pro

This ‘toxic mix’ could hurt commodity prices further

Market perceptions of weaker Chinese growth and a resurgent US dollar are a “toxic mix” for already battered commodity prices, and these headwinds will continue to impact prices in the second half of the year, says HSBC.


The bank this week cut its price forecasts for base metals in 2013 by up to 12 percent and also revised down next year`s price targets by up to 13 percent.


Andrew Keen, global head of metals and mining at HSBC, said the adjustment to near term forecasts for base metals is a reflection of poor market sentiment for the sector going into the second half of the year.


“We are shaving some demand growth in the near term,” Keen said in a report. “We lower our 2013-14 demand growth forecasts to reflect slower GDP (gross domestic product) growth in China.”


Slowing growth in China, the world`s biggest consumer of base metals, has triggered a broad selloff in commodities. The price of three-month copper on the London Metal Exchange, for example, slumped to its lowest level in almost three years at the end of June to hit USD 6,602 per metric ton – levels unseen since July 2010.


Andrew Su, CEO at brokerage Compass Global Markets, said he expects copper prices to fall another 10 percent this year as China`s economy slows.


“We`ve had some investment banks calling for a figure below 7.5 percent for the last quarter, I think it can potentially go down to 7.1 percent for Chinese growth in the third quarter – we`re quite bearish on base metal prices,” Su said.


Data this week showed that China`s economy slowed for a second straight quarter this year, down to 7.5 percent in April to June from a year ago, compared to 7.7 percent in the first three months.



Meanwhile, a surging US dollar, which is up almost 4 percent against a basket of major currencies this year, has also been a big damper for commodities, as a stronger greenback makes dollar-priced metals more expensive for non-US investors.


The case for dollar strength remains intact on back of the likelihood of the US Federal Reserve scaling back its stimulus program later this year, analysts say.


According to HSBC, an oversupply in metals like aluminum, nickel and zinc continues to be persistent, and will depress prices.


“Although we have seen some output cuts in China and the West, we believe this is still not sufficient to address aluminum`s structural surplus,” Keen said. “We lower our 2013 forecast to USD 1,934 a metric ton from USD 2,100 a metric ton and our 2014 estimate to USD 2,100 a metric ton from USD 2,200 a metric ton.”


Victor Thianpiriya, commodity analyst at ANZ, however, said base metals led by copper could see relief rallies in the near term even though these will be short-lived.


“Speculative positioning is still very short in copper, meaning any better-than-expected Chinese economic data will have an outsized effect on pricing. But demand is seasonally weak in the third quarter, which should mean that short-covering rallies are faded,” Thianpiriya said.


Copper did climb as high as USD 7,046 a metric ton on Wednesday on short-covering, within reach of a near one-month high hit on July 11, Reuters reported.


-By CNBC.com`s Rajeshni Naidu-Ghelani; Follow her on Twitter @RajeshniNaidu



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