Commodity detector Weaker-than-expected February trade deficit figures from China is placing negative impact on both equity and commodity markets. Exports showed 18.1% YoY decline (vs. consensus: +7%) and 45% drop from its previous month. This is the first trade deficit over the past two years and quite a few deficits since the data was compiled. We expect rising investor concerns over China’s economic recovery to place negative implications on industrial commodity prices such as crude oil, copper, etc. In particular, we notice the sharp retreat in copper (40% is consumed by China) prices for two consecutive days. On the flip side, uncertainties related to China’s growth and Ukraine pushed up gold prices. Energy: Concerns over weak China – Weaker-than-expected trade data from the world second largest crude oil consumption market led crude oil prices to slip. Moreover, Crimea’s behind-doors vote to secede from Ukraine and become a part of Russia is lifting international tension. Meanwhile, illegal oil export in Libya and military actions to halt any illegal exports by pro-government militias is raising uncertainties. Until the dust settles, crude oil prices will hinge on the risk premium rather than supply and demand dynamics, in our view. Precious metals: Safety comes first –Gold was up while silver was down. Gold prices were driven by uncertainties from China and Ukraine. On the contrary, silver was more correlated with copper over gold on the back of speculation that industrial demand from China may falter. Non-ferrous metal: China’s economic weakness hits copper prices – Copper futures posted the biggest two-day drop in 28 months amid faltering economic growth in China, the world’s biggest consumer of industrial metals. On the Comex in New York, copper touched below USD3 a pound for the first time since June. We expect to see a technical rebound in the near horizon; however, without a fundamental recovery the rebound should be only short lived. Farm products: Key farm products slipped over 2% – Soybean, corn and wheat declined over 2%. Farm products dropped after US Department of Agriculture report (USDA/WASDE) projected higher-than-expected farm product supplies in the US ahead of this year’s harvest and estimation for greater global stockpiles
Posted on: Tue, 11 Mar 2014 03:52:10 +0000
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