IBT:Commodities Soar as Chinese Data Show Pleasant Surprise
Market sentiment buoyed as Chinese macroeconomic data surprised to the upside, temporarily overshadowing ongoing debt problems in the Eurozone. Oil prices climbed with the front-month contract for WTI crude oil rising to 97.96 and the equivalent Brent crude contract to as high as 118.41. Gold strengthened further with the benchmark Comex contract extending gains to 1575.9. Price is approaching the record high of 1577.4.
China's economy expanded +9.5% y/y in 2Q11. While easing from +9.7% in the prior quarter, it exceeded market consensus of a +9.3% expansion. The upside surprise was driven by strong growth in industrial production (IP). Exceeding market expectations, June's IP accelerated to +15.1% from +13.3% and +13.4% in May and April respectively. Retail sales jumped +17.7% y/y in June, higher than consensus of +17.0% and June's +16.9%, as boosted by consumer confidence and rising wages in both urban and rural population. Fixed asset investment (FAI) rose +25.6% y/y in the first 6 months (January - June) of the year, easing from +25.8% from January - May. In coming months, growth in FAI may continue to ease but should stay above +20%, a relatively high level indicating robust investment outlook.
The set of data should send positive messages to the market and give further evidence that China should avoid hard landing. While the government should maintain appropriate tightening monetary policies in the second half, further rate hikes and RRR increases would be adopted more cautiously as inflation might have peaked at +6.3% in June.
The focus in the US session is Fed Chairman Ben Bernanke's Semi-Annual Testimony to the House Financial Services Committee. Apart from discussions on the economic outlook, the Chairman is expected to push forward fiscal consolidative measures as persisting fiscal deficit problems are limiting what the Fed can do on monetary policies.
The DOE/EIA will release its weekly oil inventory report. According to the industry-sponsored API, crude inventory rose +2.3 mmb in the week ended July 8. Gasoline stockpile drew -1.6 mmb while distillate soared +4.8 mmb. The market instead forecasts crude inventory declined -2.1 mmb during the week. Concerning fuels, gasoline and distillate inventories probably increased +0.7 mmb and +0.8 mmb respectively.
