Copper hits five-week low on strong dollar, Chinese data

Copper sank to a five-week low on Wednesday, pressured by a strong dollar and data pointing to slowing growth in top metals consumer China.

Three month copper on the London Metal Exchange, closed 1.2 percent lower at $6,970 a tonne. It hit a low of $6,951.75 a tonne in intraday trade, its lowest since June 30.

Three-month nickel ended 1.7 percent higher at $18,725 a tonne, rebounding from earlier falls that had pushed the metal to its weakest level since June 25 at $18,256.

Eugen Weinberg, head of commodities research at Commerzbank, said selling pressure was not restricted to copper and nickel.

"All metals today are under strong pressure due principally to two factors: weaker Asian markets, particularly Chinese, and a strong U.S. dollar."

The dollar held near an 11-month high against a basket of major currencies supported by positive U.S. data and a sharp fall in Germany's industrial orders in June, which weakened the euro to its lowest since November.
A stronger U.S. currency makes dollar-denominated commodities, including base metals, more costly for holders of other currencies.

Data on Tuesday showed activity in the U.S. services sector hit an 8-1/2 year high last month and factory orders surged in June, bolstering expectations of solid economic growth in the third quarter.

Indications that growth in China's services sector had slowed weighed particularly on copper, which is used in construction and electrical goods.

Growth in China's services sector in July was at its lowest level in nearly nine years, a private sector survey showed on Tuesday, indicating a recovery in the broader economy is still fragile and may need further government support.

On Monday the Chinese government reiterated that it would increase investment in areas including the property sector, while authorities will advance wide-ranging economic reforms such as changing the fiscal and pricing systems.
This plan to catalyse infrastructure investment in the second half may help offset the slowdown in the property sector, said Helen Lau, senior metals analyst at UOB-Kay Hian Securities in Hong Kong.

"We should not be too bearish because the outlook for demand in the second half is good," Lau said.

Trading sources said, however, that small importers of refined copper in China are likely to delay term shipments as local banks cut lending following a probe into an alleged metal financing scam. This could create extra supply in the international market, putting further pressure on the metal.

Aluminium ended 0.6 percent higher at $2,025 a tonne, zinc closed 1 percent lower at $2,357.50 a tonne, lead ended 0.2 percent higher at $2,243 a tonne and tin closed 1 percent lower at $22,280 a tonne.

U.S. crude stocks fall as imports dip; steep gasoline drawdown -EIA

 U.S. crude stocks fell last week as imports dipped, while lower refinery output contributed to a surprise sharp drop in gasoline and distillate inventories, data from the Energy Information Administration showed on Wednesday.

Crude inventories fell 1.8 million barrels in the week to Aug. 1, compared with analysts' expectations for a decrease of 1.7 million barrels.

Crude stocks at the Cushing, Oklahoma, delivery hub rose 83,000 barrels and U.S. crude imports fell 181,000 barrels per day, the EIA said.

Gasoline stocks fell 4.4 million barrels, confounding analysts' expectations in a Reuters poll for a 300,000-barrel gain.

Distillate stockpiles , which include diesel and heating oil, fell 1.8 million barrels, versus expectations for a 900,000-barrel increase.

Refinery crude runs fell 158,000 bpd or 1.1 percentage points to 92.4 percent of total capacity.

"The drawdowns in gasoline and distillate fuels are impressive and the further drawdown in crude oil inventories should combine to support the complex," said John Kilduff, partner at Again Capital LLC in New York.

Oil prices briefly extended after the data, with U.S. crude climbing above $98 a barrel and Brent reaching an intraday high of $105.44 a barrel before retreating.

By 10:54 a.m. (1454 GMT), U.S. crude was up 50 cents at $97.88 and Brent up 65 cents at $105.26.

Source: Reuters

Greek deflation slows in July, trend intact

 Greek consumer prices fell 0.7 percent in July, with the annual pace of deflation decelerating from a 1.1 percent fall in June, data from the country's statistics service showed on Wednesday.

Greece's EU-harmonised deflation rate also slowed down to -0.8 percent in July from -1.5 percent in June, coming in below a -1.3 percent rate expected by economists in a Reuters poll.

In November, deflation in Greece hit its fastest pace since monthly records began in 1960, registering a 2.9 percent year-on-year decline.

Euro zone inflation fell to just 0.4 percent in July, its lowest level since the depth of the financial crisis nearly five years ago, highlighting deflation risks on the European Central Bank's radar. [ID:nL6N0Q63J8]

************************************************************** 
    KEY FIGURES       JULY  JUNE    MAY    APRIL   MARCH   FEB 
    CPI y/y           -0.7  -1.1   -2.0    -1.3    -1.3   -1.1 
    EU-harmonised     -0.8  -1.5   -2.1    -1.6    -1.5   -0.9 
    ---------------------------------------------------------- 
    source: ELSTAT 



Reuters

DespiteThe failure of Banco Espirito Santo the EU bank reform is on track

The failure of Banco Espirito Santo is not a harbinger of disaster for Europe’s nascent banking union. On the contrary, the main lesson from the Portuguese bank's collapse and rescue is that European bank regulation is getting stronger.

Of course, the situation is lamentable. BES should never have been allowed to develop incestuous relations with its financially challenged owners. It would have been better to make senior creditors, rather than the Portuguese state, provide the 4.4 billion euros judged necessary to help cover possible losses. And it’s disturbing that the Troika – which includes the European Central Bank that will soon regulate all big euro zone lenders – managed to miss BES’s issues given it has overseen Portugal’s economy since its national bailout in 2011.

Still, the BES plan is far superior to last year's disorderly Cypriot bank rescue, when uninsured depositors suffered losses. It is also better than most of the bailouts during the financial crisis five years ago, in which governments limited even shareholders' losses. At BES, both shareholders and junior creditors will be on the hook. Besides, taxpayers should not end up losing out directly. Levies on the nation's banking system should make up for any shortfalls.

As far as regulation goes, the failures belong to an old regime. Once the European Central Bank starts regulating the big euro zone lenders in November, it will hopefully do a better job. And it will not be allowed to be kind to senior creditors. As of January 2016, they will be eligible to be "bailed in" during bank rescues.

There is another reason that BES shouldn’t set an unhappy precedent. It is unlikely that many European banks are controlled by families that also run networks of opaque and leveraged entities, let alone entities which manage to borrow from the family bank without disclosing the loans to either regulators or the bank's own board of directors, as BES alleged last week.

Investors seem to understand that the collapse of BES is not the beginning of a doom loop of financial woes and strain on government finances. At the height of the credit crunch in 2012, any bank failure tended to make yields on government debt jump. Portugal’s actually rallied on Aug. 4.

Although BES's structure is extraordinary, more conventional euro zone banks may yet fail. But if they do, the Portuguese lender provides a template of how to proceed – and one which can and will be further fine-tuned.

Source: Reuters

Italy's economy returns to recession

 Italy slid into recession for the third time since 2008 in the second quarter, underlining the chronic weakness of the euro zone's No.3 economy and pressuring Prime Minister Matteo Renzi to complete promised reforms.

Figures on Wednesday from statistics agency ISTAT showed gross domestic product unexpectedly declined by 0.2 percent in April-June from the previous three months. A Reuters poll of economists had forecast growth of 0.2 percent.

The economy also shrank by 0.1 percent in January-March, meaning it has returned to recession, defined as two consecutive quarters of contraction. 

Unions and opposition parties said the figures showed Renzi had failed to address the problems of the country, which the leftist SEL party said faced a "real economic disaster".

However, Economy Minister Pier Carlo Padoan rejected suggestions that the government would have to pass an emergency budget to ensure Italy respected European Union deficit rules.

Italy has posted only one quarter of growth since mid-2011, expanding 0.1 percent in late 2013. Adjusted for inflation, second quarter GDP was the lowest for 14 years, ISTAT said.

Italian stocks fell more than 2 percent after the data and the risk premium on Italy's 10-year bonds over those of Germany widened by 12 basis points from Tuesday's close. 

Renzi has announced ambitious labour and tax reforms to revive growth needed to curb Italy's 2 trillion euro debt burden but progress has been slow, with his energies taken up for weeks by a draining parliamentary battle over constitutional reform.

His calls for a more expansive interpretation of European Union budget rules have been met sceptically by partners, who fear slackening fiscal discipline will simply push up the debt - already the world's fourth biggest - without growth.

However in a letter to parliamentarians after the data was reported, Renzi said there was no alternative to the reforms.

"So we must move forward with greater decisiveness," he said.

European Commission economic policy spokesman Simon O'Connor said the EU had already said Italy should stick to its budget plans.

Italy's official projections see growth of 0.8 percent and a deficit of 2.6 percent of GDP in 2014, but Padoan ruled out any emergency measures to keep the budget deficit within the EU's ceiling of 3 percent of GDP.

"The government is closely watching public finances and with attentive spending controls, there's no need for a supplementary budget," Padoan, a former chief economist at the OECD, told RAI state television.


REFORMS

The Italian GDP reading and data showing German industrial orders fell at their fastest in almost three years in June will reinforce concerns about feeble growth and inflation in the euro zone ahead of a European Central Bank meeting on Thursday. 

Germany and France, the bloc's two biggest economies, are due to report second quarter GDP figures next week.

Spain, once at the fore of the euro zone debt crisis alongside Italy, posted second quarter growth of 0.6 percent last week, suggesting their economic fortunes are diverging.

Italy's bond yields have plunged since the ECB pledged at the peak of the crisis to save the euro, but Wednesday's data highlights the lack of progress made in addressing the problems of an economy that has stagnated for more than a decade.

"It has been difficult to distinguish between peripheral Europe for some time, but what we have seen this year is the outperformance of countries that have implemented structural reforms and improved their competitiveness like Spain and Ireland," said Azad Zangana, European Economist for Schroders in London.

"Meanwhile countries that have been slow and unwilling to embrace reforms such as Italy and France, have been a drag on the wider Eurozone economy," he said.

The Bank of Italy said last month that GDP had contracted by 9 percent since the global financial crisis began in 2007.

Beyond an 80-euro-a-month tax break for millions of low-income workers introduced in the second quarter, Renzi has yet to translate promises to revive growth made when he took office in February into action.

Even the impact of the tax break has been questioned after the head of Italy's retail association Confcommercio said the effect on consumer spending had been "almost invisible".

Last month, the Bank of Italy cut its growth forecast to just 0.2 percent for 2014, in line with forecasts from other bodies including the International Monetary Fund and the Organisation for Economic Cooperation and Development.

The data did offer some encouraging signs, however.

ISTAT said industrial output, which in Italy is usually closely correlated with GDP, rose 0.9 percent in June, driven by gains in investment and consumer goods, after posting its steepest drop since 2012 a month before. 

Source: Reuters

German industrial orders fall at their sharpest rate in almost three years

German industrial orders fell in June at their steepest rate since September 2011 as euro zone demand weakened and bulk orders were below average, with the Economy Ministry suggesting this was in part due to uncertainty over the Ukraine crisis.

Suggesting output in Europe's largest economy will have a weak start to the third quarter, contracts fell by 3.2 percent on the month as orders from the single currency bloc plunged by 10.4 percent, data from the Economy Ministry showed.

Big-ticket orders were well below their usual June levels and without them, bookings increased by 1.1 percent on the month.

The headline figure missed the Reuters consensus forecast for a 1.0 percent rise and undershot even the lowest estimate for a 0.5 percent decrease.

The Economy Ministry said "geopolitical developments and risks" probably led to more cautious ordering and a spokesman told a news conference that alongside the uncertainty caused by the tension between Russia and Ukraine, factors such as weaker euro zone appetite and lower bulk orders had also played a role.

NATO said on Wednesday Russia had amassed around 20,000 troops on Ukraine's eastern border and could use the excuse of a humanitarian or peacekeeping mission to send them in.

Analysts played down any impact of the Ukraine crisis on orders so far. Commerzbank economist Ralph Solveen said the strong decline in orders was due exclusively to a drop in notoriously volatile areas such as plane and ship orders, which he said was likely caused by a strong euro and a weaker global economy.

"Production is likely to fall in the coming months and that increases the risk the German economy will, after a slight dip in the second quarter, also disappoint in the third," he said.

The German economy grew at its strongest rate in three years in the first quarter but that was largely due to mild weather and it is generally seen slowing or even stagnating in the second quarter before accelerating again in the third.

A spokesman for the Economy Ministry told the news conference the German economy nonetheless remained "intact".


UKRAINE CRISIS

Andreas Rees, chief German economist at UniCredit Research, said while the downside risks had increased due the tension between Russia and Ukraine, hard data did not suggest it had taken its toll on companies in the second quarter.

Last week the European Union imposed sanctions targeting Russia's banking, defence and energy sectors. On Monday Germany said it had permanently halted Rheinmetall'splanned export of combat simulation equipment to Russia.

Werner Deggim, head of German engineering firm Norma Group , told Reuters he was not particularly worried about the sanctions: "They won't have a serious effect on our business," he said, confirming the company's full-year forecast for 4 to 7 percent revenue growth.

The Economy Ministry said the order level in the second quarter was 0.6 percent below the level of the first quarter, largely due to weaker appetite at home. That could be a concern for the German government, which is relying on domestic demand to prop up growth this year as exports remain weak.

The ministry said growth in the industrial sector would tend to be moderate in the coming months.

Factories producing capital goods got 6.4 percent fewer bookings in June than in the previous month and contracts for consumer goods manufacturers dipped slightly. Intermediate goods orders were the only bright spot, rising 1.6 percent.

Data due out on Thursday is expected to show industrial output climbed by 1.3 percent in June.

The orders data for May was revised up to a drop of 1.6 percent from a previous -1.7 percent.

Source: Reuters