Trends In International Markes, 5 September

Lower crude prices this week can mainly be attributed two factors. After the long weekend holidays in the US, fears eased that tight gasoline supplies could become a major problem during the US driving season. Additionally, the yesterday?s published figures about US crude inventory stocks showed an increase of 1.8 million bbl to 280.4 million bbl. However, this is still 16.6 million bbl below the level in the previous year. The oil market will remain volatile and vulnerable to unanticipated events, particularly in the Middle East.

Gold continued to rise this week and reached briefly a seven-month high last Tuesday. But analysts point out that there is a possibility of a big reversal after the recent advances. The last was seen in February when the gold price hit $388.5 just to fall back to $369.4 within one week. To maintain the current high price, there will be a need of more speculative buying in the next days. In the coming weak, it can be expected that currencies will be the main driving forces for gold which is looking for a consolidation price.

Also this week, the role of China in commodity markets was highlighted. The country?s demand for raw material is surging and it will soon become a price setter in international markets. Analysts pointed at the huge amount of raw materials will be needed to fuel its GDP growth that is currently exceeding seven per cent a year. This means that China may single-handedly pull the global commodities market out of a deep rut. Last year, China was responsible for 28 percent of the worldwide iron consumption, 21 percent of steel consumption and 20 percent of aluminum consumption. Nickel and aluminum prices have already doubled over the past two years. It is assumed that China ended the 20 year bear market in commodities and launched a new bull market.

In the world of equities, Wall Street had a good week as investors came back to the market, lured by rosy economic data and a rally in high-techs. The upward trend seems to continue as mutual funds are to pour new money in. There were several economic data which show a recovery of the US economy. July factory orders climbed 1.6 per cent, much higher than the expected 0.9 per cent increase. The Institute for Supply Management announced its index of non-manufacturing activity remained unchanged in August at a record high of 65.1 and second-quarter productivity was revised upward to 6.8 per cent from an initial 5.7 per cent.

On Tuesday, John Snow, the US treasury secretary was in Beijing to discuss Chinese currency issues. He required the Chinese leader to abort the fixed currency regime and to float the renminbi. He was backed by the International Monetary Fund which thinks it is in the best interest of China to move towards a more flexible exchange system. Such a move would improve the central bank?s ability to steer money and credit growth. The renminbi has been pegged at 8.28 to the dollar since 1995. The US is asking for the floating after huge complaints of American manufacturers which claim that cheap Asian currencies would destroy business and jobs in the US. China however rejected the proposal and the US rhetoric. It is assumed that the renminbi is undervalued by up to 40 percent.

On Monday, Japanese government bonds rose to their highest level in 30 months together with the stock market which reached a 13-month high. Analyst suspected the massive bond sale was caused by stock market advances. It is already feared, that the rise of the long-term yields could choke off Japan's economic recovery, by increasing debt servicing costs for Japanese companies. Already last week, the Bank of Japan, which is concerned about rising interest rates, bought Y2?000 billion of longer-dated bills in the money market to signal that an interest rate rise, some investors had come to expect, would not happen soon.




Author: Andreas Wild