A day after rising to the month’s high, prices fall sharply as poor Chinese manufacturing data spur hope on monetary easing there.
Global commodities softened on Thursday after rising the most in a month in the previous session, as poor Chinese manufacturing data pulled down the optimism spurred by major European central banks’ move to aid the region’s distressed lenders.
Copper price marginally declined to settle at $7,801 a tonne on Thursday from the level of $7,859 a tonne yesterday. Barring aluminium all other base metals settled lower from Wednesday's closing level . The same trend prevailed in the precious metals and energy sectors. Spot gold and platinum fell by $3.28 and $0.75 to trade at $1,745 an oz and $1,561 an oz in early afternoon London trade. After moving in a narrow range, silver and palladium, however, jumped by $0.49 and $4.15 to quote at $33.23 an oz and $617.48 an oz, respectively. Brent crude oil fell marginally from $111.32 per barrel yesterday to $109.74 per barrel on Thursday.
“Global financial markets witnessed a revival of upbeat sentiments yesterday on the steps the world’s six major central banks took to tackle the euro zone debt crisis by providing cheaper dollar funding. The US Federal Reserve, the European Central Bank (ECB) and the central banks of Canada, Britain, Japan and Switzerland stated yesterday that they would decrease the cost of existing dollar swap lines by 50 basis points from December 5 and arrange bilateral swaps to provide liquidity for other currencies,” said Naveen Mathur, associate director, Angel Broking.
Additionally, a move by China also came in as a relief to the ailing global financial markets, as the world’s fastest growing economy cut reserve requirements of banks by 50 bps yesterday. The new ratio will be effective from December 5.
All major commodities such as precious metals, base metals and crude oil witnessed an upside yesterday on optimism that policy makers would collectively find a solution to the debt crisis. But market sentiments turned mixed on Thursday, as the ECB indicated this may not be the final solution to the underlying debt issues in the 17-nation euro region and we feel positive sentiments could be short-lived if the provided measures do not yield the desired results, Mathur added. The modest fall in all global commodities suggest they may resume a rally, amid hopes that the world may be getting closer to resolving a two-year-old debt crisis in Europe and China was shifting its monetary policy to support growth.
Anand James, an analyst with Geojit Comtrade, said, “Following the direct gold price rise to $1,745, the breakout rally may have lost some steam, calling for a brief phase of long liquidation. However, if such slippages do not extend past the $1,735-40 an oz level, a recovery cannot be ruled out towards $1,775-81 an oz in a very optimistic scenario. Inability to clear $1,771 should be considered a signal for a reversal, and a fallback below $1,715 could usher in a cascading of gold prices.”
Meanwhile, China’s manufacturing recorded the weakest performance since the global recession eased in 2009, underscoring the case for monetary stimulus as Europe’s crisis weighs on the world’s second-largest economy. Factory output, which accounts for 40 per cent of gross domestic product, hit its weakest pace in a year this October, though expansion in the first 10 months of 2011 averaged 14.1 per cent.
A purchasing managers’ index compiled by the China Federation of Logistics and Purchasing slid to 49 in November. Readings below 50 signal a contraction. Separate reports showed slowing retail sales and an industrial slump in Australia, which relies on China as its biggest export customer.
