Tuesday, July 13, 2010

Commodities Under Pressure as China Reiterated Property Curbs

Forex Special

Last week, investors were thrilled after a Chinese newspaper said that some Shanghai-based commercial banks have resumed lending for third-home purchases and eased policies for second-home buyers. This made the market think that the government has relaxed curbs on the property market. However, the news was denied by some Chinese banks afterwards.
Yesterday, the Ministry of Housing and Urban-Rural Development reiterated that it will maintain curbs on speculative property buying and increase market supply. Moreover, the China Banking Regulatory Commission also released a statement in its website, saying that the regulation has made no changes in the home loans policies which required strict enforcement of commercial banks.
The releases, together with disappointing property price and new lending data in June, reignited worries over growth slowdown in China.
Stocks plunge in Asian session today as led by Chinese property shares. China's Shanghai Composite Index slides -1.8%.
Commodities remain under pressure after a sharp selloff in NY session yesterday. Crude oil fell for the first time in 4 days as USD strengthened. The front-month WTI contract dropped to an intra-day low of 74.52 before settling at 74.95, down -1.50%. Brent crude also declined, by -1.55%, to 74.48 at close.
US Treasury surged as Wall Street traded narrowly ahead the start of the earning season. At the same time, the euro and the pound slid amid deficit concerns. For the Eurozone, investors feared that results of the stress test, to be released on July 23, will fail to rebuild market confidence on the region. For the UK, S&P's Ratings Services affirmed the country's AAA rating and maintained the negative outlook. The agency said there's still chance for a downgrade as the economic outlook may be worse than the government projected in the emergency budget. Concerning the fiscal plan, S&P said the direction is 'favored by ratings agencies, and that helped ease the pressure on credit standing in the near term' but 'real actions' are needed before the outlook can be changed.
Apart from dollar's strength, crude oil also lost upward momentum as BP said the threat of Gulf oil leak may be resolved. At the same time, White House released a revised offshore drilling moratorium which may allow new wells drilling safety standards are raised. The moratorium is less stringent from the first one which imposed a 6-month suspension on deep-water drilling in reaction to the BP Plc oil spill but the suspension was revoked.
Gold initially surged to as high as 1213.5 but then erased most gains and settled at 1196.1. In the near-term, gold price movement will be affected by fixed income auctions. The US will issue 3-year (completed yesterday), 10-year and 30-year government bonds worth $69B this week while Greece will have a 6-month note auction worth 1.2B euro today. Good response of the auctions should weigh on gold.


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