Market Commentary
Key Notes: Chinese economic data showed industrial output growth eased much more than expected in April. Industrial output rose 13.4%. This was below expectations and indicates that growth in the Chinese economy could be slowing after monetary tightening measures. Consumer inflation edged down to 5.3% from a 32-month high in March, but was above forecasts of 5.2%. Commodities slumped as sentiments were impacted after the weak Chinese industrial growth, with silver and gasoline leading the decline.
Within the past two weeks, silver has posted its third sharp daily drop of more than 8%. Bullish sentiments in silver have taken yet another hit. While there may be some eager bargain-hunters who may emerge, others may be take a more cautious approach and await further signs that the correction is over before entering the market. Hence, there could be further weakness in silver prices in the near term. However, on a long basis, investment demand for silver is likely to return. Silver is viewed as a cheaper alternative to gold. Should gold resume its long term upward trend, silver will benefit once again as a leveraged play on gold.
Market Summary
Precious Metals: Silver prices plunged more than 8% yesterday as China's industrial output growth declined much more than expected. China is a major consumer of silver and more than half of silver's global output is consumed by the industrial sector. Silver's losses accelerated as energy products plummeted, leading a sharp decline across the commodity sector. Gold dropped by 1%, dragged down by sharp losses in silver. The gold-silver ratio rose to a three month high after silver’s tumble.
Base Metals: Copper slumped to its lowest since December 2010 as poorer than expected economic data from China signaled a slowdown in growth. Investors worried that demand for base metals may slow. China's absence from the copper market is reflected in the rising trend in LME copper stocks. LME stocks rose 25 tonnes to 468,350 tonnes, the highest since June 2010 and up nearly 35% since Dec. 9. China's refined copper production fell in April from March's record 470,000 tonnes.
Energy: U.S. crude oil futures dived as an unexpected jump in gasoline inventories sent markets into a panic. The EIA reported that gasoline stockpiles increased by 1.3 million barrels and crude oil stocks rose 3.78 million barrels last week. Gasoline futures plunged by as much as 25%, triggering a five-minute trading halt on the New York Mercantile Exchange for the motor fuel. The CME Group raised margins for NYMEX RBOB gasoline futures by 21.4% to $8,500 per contract from $7,000, effective after the close of business on Thursday.
Currencies: The euro slumped amidst worries about Greek debt. Investors continued to price in a high probability that the country will eventually need to restructure its debt. Finland is also delaying a parliamentary vote on the EU's Portugal bailout plan to Friday because the country's second-largest party remained undecided. The leader of Finland's third-biggest party reiterated his opposition to Portugal aid. Sterling hit its highest since March 24 against the euro after the Bank of England raised its medium-term inflation forecasts.
