Today morning base metals forwards are trading up by 0.4 to 2.4 percent at LME electronic platform
with Copper as the top gainer. The Asian equities have also opened on a stronger note and are trading positive after the European Union conference last Saturday. Euro-zone finance minister agreed to inject extra 100 billion Euros to Spain in order to support its banking sector. Spain's government earlier resorted for banking recapitalization after weak loans and economic uncertainty to the EU. In this context, risk appetite grew as the EU has finally agreed to aid Spain’s depleting capital and increased borrowings. The US dollar index plunged, while the shared currency gained more than 0.80 percent pushing up base metal prices. Further from China, the weekend trade releases of imports and exports growth was phenomenal as it was extremely low in the first four months of the year. Trade growth was much higher than expected, for the month of May showing China's foreign trade turns around and supporting gains in base metals.
Therefore, amidst positivity of Spain, financial markets may continue to rebound in today’s session. However, fundamentals remain weak, as cancelled warrants have declined indicating weak spot activity. Further, China’s car sales have deteriorated while weak property market and lower demand for new loans may continue the downward pressure in today’s session. Lower growth of property sector and weak industrial production may weigh on gains of base metals. Moreover, optimism of Spain may also not last long as the Spanish government would know the actual quantum of recapitalization after the independent audit report on June 21. Hence, present aid may or may not be enough for complete capital requirements. There are no major economic releases for the day. At our domestic front, the rupee appreciated slightly early morning and may remain positive for the day supporting downside of metals pack. Therefore,
we expect base metals may open on a positive note and may rebound and thereafter would probably trend lower due to increased selling pressure. Overall, we recommend initiating short position at pullback due to weak downstream demand for loans and property coupled with rising Greece re-election concerns. All these factors may continue to limit gains in base metals.