The second quarter of 2011 has in fact seen a near 8% slump in the S&P GSCI Index of 24 raw materials. Bets on corn and wheat showed ebbing enthusiasm for higher prices down the road, while crude oil (which lost 7.1% last month) showed a shrinking margin of remaining bullish-flavored bets still on the books. This morning, however, brought joy to black gold specs as the commodity got a near-$2 lift and touched the near-$97 per barrel mark.
As we noted in several instances here last week, China has a potential problem or two on its hands. Real estate bubbles, overheating inflation conditions and the not-so-small problem of…problem loans. Our skepticism on the latter was confirmed this morning by Moody’s Investor Services (man, this firm is in ‘heavy rotation in the headlines lately!). The agency said that the “scale of problem loans at Chinese banks could be closer to the “bleaker” range of estimates.” Moody’s feels that somewhere between 8% and 12% of the loans that have been made by Chinese banks could eventually be labeled “non-performing” as opposed to the previously estimated 5 to 8 percent. Oops.
In other Chinese-oriented news, the most recent statement by the PBOC has opened the door to near-certainty that an interest rate hike could be in the offing, to come perhaps as soon as this weekend. As a result of the anticipation of the hike, the yuan was…down against the dollar this morning. Yes, down. The implication is that a rate hike is intended to slow the economy. The same anticipation also impacted the Aussie dollar today. Monetary tightening by the PBOC is seen as having a potentially deleterious effect on the demand for that which Australia has become famous for, owing to China’s boom; raw materials.
Chinese authorities continue to remain unhappy about the trends seen in inflation. Consumer prices showed a 5.5% rise in May; the largest bump in three years. The next set of inflation data from China is due on the 15th of this month.
Until tomorrow, “File’s Done!” and “Good-Bye!”
Senior Metals Analyst – Kitco Metals