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LME METALS round-up: 1 March

The metal markets were nervous and uncertain at the start of this week because there were three potential misfortunes waiting to happen.

The metal markets were nervous and uncertain at the start of this week because there were three potential misfortunes waiting to happen.

First, there was the Italian parliamentary election, which threatened to derail the work of the outgoing government in bringing state finances under control. Moderate centre/left parties were heading for control of the lower house of the Italian parliament, according to a large protest contingent.

But the senate seemed to be heading for stalemate, which confirmed the markets’ fears that the country could become ungovernable. This led to worries that the eurozone could face another bout of fever.

Just as worrying was the possibility that, before the end of the week, the US Congress will have failed to avoid the so-called sequester. This is the package of some $85bn (£56bn) of spending cuts that were due to come into force at the end of last year, but were put off for two months as part of the deal that stopped the US economy diving over the fiscal cliff. Two months is not a long time, and the cuts threaten once again to derail the still-fragile US economy.

The markets were also concerned that the US Federal Reserve might start to cut back on the bond purchases that have kept money flowing into the economy, and some of which has been invested in the commodity markets.

Also pointing in the wrong direction was the European Commission’s forecast that the eurozone economy of 17 countries would contract by 0.3% during this year instead of growing by 0.1% as it had been suggesting earlier. Buried in the Commission’s figure was the prediction that the eurozone would grow by 0.7% in the final quarter of this year, but that was too far ahead for most traders.

There was also some cheer from the Bundesbank, Germany’s central bank, which said that the country would avoid recession (defined as contraction for two quarters in a row) by growing in the first three months of this year. But the German economy did contract by 0.6% in the final three months of last year.

Meanwhile, the preliminary purchasing managers’ index for manufacturing in China, compiled for the bank HSBC, fell to 50.4 in February, down from 52.3 in January and its lowest level for four months.

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