Tuesday, November 23, 2010
Financial Markets Tumble on Geopolitical Tensions and Fears over China's Demand
News said that China's biggest banks are close to reach their lending quotas and will stop making new loans to avoid exceeding the limits. Commodities especially oil and base metal prices were pressured as curbs in lending would slow investments and hence demand growth. Gold price remained resilient although early gains were partly pared amid broad based decline in commodity prices.
Tensions between the two Koreas have intensified since March when the sinking of a South Korean warship killed 6 sailors. North Korea denied any responsibility. Yonhap News reported North Korea the morning fired tens of artillery shells near the western border with South Korea, in prompting the South's military to fire back.
The attack has caused at least 1 South Korean soldier was killed and 13 injured. Market sentiment has been badly hurt with equities and growth currencies slumping. The MSCI Asia Pacific Index excluding Japan tumbled more than -2%. While South Korea's KOSPI index slipped -0.79%, Hong Kong's HSI plunged -2.67%, Singapore's Strait Times Index fell -2.03% while China's Shanghai Composite Index slid -1.94%. Korean Won fell -2.60% against the dollar while other currencies also fell.
Rumors said Chinese banks such as Industrial & Commercial Bank of China, Bank of China and Agricultural Bank of China have almost reached their annual lending quotas and will only lend as existing loans are repaid. New loans have reached RMB6.9 trillion as of November, approaching the government's cap of RMB7.5 trillion for the full year. Also weighed on commodity prices was the Customs' final trade data for October. Several commodities showed decline in imports, raising fears that China's demand has moderated. For instance, imports for both copper concentrate and refined copper tumbled -30% m/m in October. Imports for nickel, zinc and lead also contracted during the month.......Read the entire article and charts.
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