Financial markets steadied ahead of the September FOMC meeting. While anticipating more easing would come from the Fed, investors' concerns over China's economic slowdown heightened as the rebound in China's CPI in August raised the difficulty for the country to cut interest rates to stimulate the economy. Commodities moved sideways on Monday with crude oil and gold prices hovering around last Friday's close.
China's headline inflation unexpected rose +2.0% y/y in August, up from +1.8% a month ago. The rise in CPI in the world's second largest economy was driven by the upsurge in food prices due to recent bad weather. The rebound in China's inflation has mixed implication to the People's Bank of China. On one hand, the central bank is probably happy to see some pick-up on inflation after the economy has moderated faster than anticipated in recent quarter. It might be the first sign that previous RRR reduction and reverse repos were effective. On the other hand, the market has long been looking forward for China's further monetary easing, be it RRR reduction or rate cut. A pickup in inflation might further delay PBOC's easing and dampen investors' confidence.
Meanwhile, China's imports surprisingly fell in August, reinforcing the trend of the country's slowdown. According to the Chinese Customs, imports declined -2.6% y/y in August, compared with consensus of a +3.4% increase and a +4.67% gain in July. Exports rose +2.7% from a year earlier. Total trade surplus, however, increased +49.3% from the same period last year. On monthly basis, the surplus also widened modestly by +6.02%. Despite widening in trade surplus, the decline in imports indicated domestic demand has been dropping more than anticipated, sending a further signal for the need of stimulus.
Commitments of Traders:
With the exception of heating oil, speculators were bearish towards the energy complex in the week ended September 4. Net length for crude oil futures slipped -10 670 contracts to 238 592 while that for heating oil gained +2 813 contracts to 14 161. Net length for gasoline slipped -2 280 contracts to 67 165. Net short for natural gas futures added -11 541 contracts to 90 392.
Speculators were bullish towards precious metals during the week. Net length for gold futures increased +11 973 contracts to 170 464 while that for silver added +3 792 contracts to 32 430. For PGMs, net length for platinum gained +1 820 contracts to 30 483 while that for palladium rose +588 contracts to 78 391.
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