Stock markets around the world were boosted yesterday by stronger-than expected Chinese economic data. Industrial output in China in May increased 13.3% from a year ago, whereas economists had expected only a 13.2% rise.
Copper futures traded at the New York Comex rose by 12.35 cents (3.1%) in response to this news, with copper settling at $4.1540 a pound, the highest settlement price since May 31. China consumes 40% of the world’s copper, and though much of this metal is stored in bonded warehouses in Shaghai that don’t report their inventories, visible copper inventories stored at the Shanghai Futures Exchange are down 51% from a peak of 177,365 tonnes in March. These inventory draw-downs suggest that Chinese producers may have to buy more copper, which will place upward pressure on prices and could encourage speculative buying in other commodities as well.
Yesterday also saw the release of a new report from Standard Chartered bank, that stated that Chinese and Indian gold buying – along with limited gold production and central bank buying – “can potentially drive the gold price to US$5,000/oz”. Standard Chartered notes that just 1.8% of China’s foreign exchange reserves is in gold, and that if the country were to bring this proportion in line with the global average of 11%, it would have to buy 6,000 tonnes of gold, equivalent to more than two years of gold production.
Across the Pacific, newly released economic statistics also surprised to the upside. Although US retail sales fell in May by 0.2%, this was less than the 0.6% fall that analysts had been expecting. Meanwhile, the US Producer Price Index for May rose by 0.2%. Annualised, the PPI is running at 7.3%, with increases every month for the last five months. This is the highest PPI rate since September 2008.
13.30GMT also sees the release of the latest Consumer Price Index numbers for the US. Analysts are not expecting a rise from last month’s 3.3% annualised rate, but given that the consensus was forecasting just a 0.1% increase in the PPI, the CPI could also surprise to the upside. Given the huge monetary stimulus provided by the Fed in recent months (with more probable in the near future), rising prices for non-discretionary consumer items looks like being a persistent trend.
