Copper drops as Spain, Italy borrowing costs rise; Greece in focus

[mikeyjerou]

Forexpros - Copper futures came under pressure during European morning trade on Tuesday, as initial optimism over the Spanish bank bailout waned and as worries grew over this weekend's elections in Greece.

Mounting concerns that the region’s debt crisis will spill over to Italy further as well as lingering worries over slowing growth in China further weighed on market sentiment.

On the Comex division of the New York Mercantile Exchange, copper futures for July delivery traded at USD3.330 a pound during European morning trade, shedding 0.4%.

It earlier fell by as much as 1% to trade at a session low of USD3.303 a pound.

Market sentiment was lifted Monday after Spain’s Finance Minister Luis de Guindos said the European Union agreed to grant Madrid a loan of up to EUR100 billion, which the government will use to recapitalize the country’s ailing banking sector.

But risk assets came under renewed pressure as the initial optimism which greeted news that Spain had secured a bailout for its banks faded and investors began to focus on the details of the rescue package.

The exact amount Madrid is to receive will only be decided later this month, after the results of independent banking audits are published. In addition, questions remained over the source of the funds and whether the bailout repayments would add to the country’s already high borrowing costs.

Adding to Spain’s troubles, ratings agency Fitch cut the long-term credit ratings for Spanish banks Banco Santander and Banco Bilbao Vizcaya Argentaria to BBB-plus from A. The rating announcement followed the three-notch cut to the country's sovereign rating last week by Fitch last week.

Spain is the fourth euro-zone nation to seek a rescue, after Greece, Portugal and Ireland. A financial crisis has gripped the country since 2008, when a real estate bust caused big losses for many banks.

Concerns about Spain’s banks have grown since Bankia, the country’s fourth-largest lender, said last month it needed EUR19 billion in state aid to shore itself up against bad loans.

Appetite for riskier assets was further weighed amid uncertainty over the outcome of a Greek general election on June 17, which could determine the course of the country’s future in the euro zone, as well as concerns over Italy’s fiscal health.

Spanish 10-year yields rose to 6.66% during European morning trade, up from 6.52% on Monday. Similar-maturity Italian yields increased to 6.19%, the highest since January.

Meanwhile, Cyprus said Monday it urgently needed European financial aid to shore up its banking system, a step that would make it the fifth euro zone economy to seek help.

The Wall Street Journal reported that the size of any bailout for Cyprus would amount to no more than EUR3 to EUR4 billion.

Europe as a region is second in global demand for the industrial metal. Prices have tracked investor sentiment toward the euro zone’s debt crisis in recent months.

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.

A deeper slowdown in China, the world’s second biggest economy, would impair a global expansion that is already faltering because of debt crisis in the euro zone.

Elsewhere on the Comex, gold for August delivery dipped 0.4% to trade at USD1,590.35 a troy ounce, while silver for July delivery fell 0.65% to trade at USD28.42 a troy ounce.