Risk Appetite Slips as Emerging Asia’s Growth Outlook Weakens

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October 8, 2012 7:11 PM EST

Financial markets slipped in Asian session on Monday as investors cautiously awaited the meeting among European finance ministers regarding the sovereign debt crisis in the Eurozone. The market was also dragged down as the World Bank revised down the annual economic growth rate in East Asia. China’s slowdown is the major reason for the downgrade. The MSCI Asia Pacific Excluding Japan Index dipped -0.7% in early trading session. Commodities also drifted lower as concerns over global economic growth weighed on risk appetite.

This week, European ministers would focus on Spain and Greece on their sovereign debt situations. The EU leaders would in Luxembourg today to discuss Spain’s effort on fiscal tightening and closer banking cooperation, before a summit held among 27 EU nations tomorrow. Germany’s Chancellor Angela Merkel will visit Greece for the first time since 2009. Regarding the situation in Greece, ECB board member Joerg Asmussen rejected the ideas of lengthening the timeline of the repayment of Greek debts or lowering the interest rates on the loans, saying both are illegal under the ECB law and “illogical” as “a temporary extension of fiscal targets automatically means that Greece needs more financial assistance from abroad”.

The World Bank in its latest economic report forecast that GDP growth in developing East Asia, (excluding Japan and India) would drop +7.2%, the slowest pace since 2001, this year from +8.3% in 2011. The lender’s forecast made in May was +7.6%. The World Bank indicated room for easing measures in the region. According to the report, “as external demand has further moderated and inflationary pressures recede, there is some space for accommodative policies in most countries, and in case of a major external slowdown, sufficient fiscal space for stimulus” while fiscal stimulus would “be more effective in keeping up demand, as policy rates are already low and liquidity relatively abundant in most East Asia-Pacific countries”.

Commitments of Traders:

With the exception of crude oil, speculators were bullish towards the energy complex in the week ended October 2. Net length for crude oil futures fell -15 417 contracts to 215 880. Net length for heating oil added +9 232 contracts to 24 797 while that for gasoline added +1 531 contracts to 75 828. Net short for natural gas plummeted -39 638 contracts for 53 905.

With the exception of palladium, speculators were also bullish towards precious metals during the week. Net length for gold futures increased +4 430 contracts to 208 326 while that for silver gained +4 108 contracts to 38 118. For PGMs, net length for platinum gained +3 397 contracts to 42 120 while that for palladium fell -139 contracts to 11 779.

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Oil and Gold Reports contributed by Oil N' Gold

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