Acceleration in China's tightening and fiscal problem in Greece caught the market's focus last week. While the former indicates slowdown in the pace commodity demand growth, the latter unveiled the risk of defaults in sovereign loans. Investors suspected recent rallies in commodities were excessive and therefore corrections were seen. The Reuters/Jefferies CRB Commodity Index slid -3.2% to 281.4.
Crude oil price ended last week with 5 straight days' of drops. The February contract slid -5.7% to close at 78 for the week. Selling pressures were heavy amid concerns on abundant inventory, slowdown in growth momentum in China as well as strength in USD.
Early last week, China released preliminary imports data for December. The readings were strong in most commodities. According the Customs, crude oil imports surged +24% to 21.26M metric tons during the month. On annual basis, the nation imported 203.8M metric tons in 2009, compared with 178.9M metric tons a year ago. The market was thrilled by the news and WTI crude oil price rallied to as high as 83.95, the highest level since October 13, 2008. In fact, emerging market, especially China, has been viewed as the demand growth driver for commodities. Anticipation for robust Chinese consumption has contributed for the 78% rally in crude price in 2009.
A Chinese proverb says 'while water can float a boat, it can also overturn a boat'. In order to stimulate investment and spending, the Chinese government implemented a RMB 4 trillion stimulus program, including government subsidies and tax breaks for home appliances and cars, last year. This has helped restored strong economic expansion in the world's third-largest economy. However, the record amounts of lending has also increased risks of asset bubbles and over heating in the economy. Therefore, the government began cooling since January 2010.....Read the entire article.
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