It’s been an amazing week with substantial falls on the Chinese stock market closely followed by a dip on the ASX. The Australian market recovered quickly though, possibly as most financial markets had already factored in the fact that the China was artificially inflated.
The weeks ahead will be interesting as the fundamental problem with China is that the economy really needs a kick start. As such a large consumer of metals and all commodities, the Chinese market is an integral part of the world economy. If China is doing well, the benefit flows onto many other markets, not least of which, to us here in Australia. Last week the Chinese Government dropped official interest rates for the 5th time since November.
On Friday the Bloomberg Commodity Index of 22 raw materials closed at its lowest level since August 1999. The index is not inflation adjusted, which highlights the impact of the recent falls.
The Australian Dollar currently trades at 71.12 which is taking some of the sting out of falling commodity prices.
Please find the following for your perusal;
**** DJ Copper Prices Fall on Renewed China Worries ****By Tatyana Shumsky
Copper prices fell on Monday after Chinese equities resumed their march lower, fueling investors’ concerns about demand from the world’s top consumer of industrial metals.
The Shanghai Composite Index fell 0.8% to 3207.07 on Monday, and is down 12.5% in August. China’s stock market has been in decline for months, resuming its march lower even after Beijing marshalled brokerages and state-backed companies to enter the market as buyers in an attempt to help stabilize stock prices.
“Nothing in copper goes right until China gets on track,” said Ira Epstein, a broker with Linn & Associates in Chicago. “They have to spend money at home,” he said, adding that Chinese authorities have more room to cut both interest rates and bank reserve requirements in order to bolster business activity.
Copper is used in everything from cellphones and computers to cars and household plumbing, making its price sensitive to shifts in the pace of business activity. China accounts for about 40% of global copper demand, and fears that it would reduce its purchases have pushed copper prices to six-year lows in recent weeks.
However, in recent trading sessions, copper prices had shot higher as some bearish traders moved to close out bets on lower copper prices. Investors have been net-bearish on copper for 12 straight weeks, according to weekly data from the Commodity Futures Trading Commission released on Friday.
Some brokers said that while the outlook for copper remains dim, these so-called short-covering rallies remain a risk because of the preponderance of bearish traders in the market.