BD: Global risk assets take pounding after Chinese data
LONDON — Commodities led a sharp, broad decline in risk assets on Monday as weaker-than-expected Chinese data added to concerns raised by US numbers about the global economic outlook.
Oil fell towards $100 a barrel, copper dropped to its lowest level in nine months, while commodity-linked currencies including the Aussie and Kiwi dollars were also hit hard.
China’s recovery unexpectedly stumbled in the first three months of 2013, as it reported its annual growth rate eased to 7.7% from 7.9% in the final quarter of last year.
Economists had forecast 8% growth.
Industrial output in March also undershot expectations and added to investor sensitivity after a negative reading of US consumer sentiment, soft retail sales, plus rekindled concern in the eurozone late last week.
Brent crude futures dropped more than $2 to below $101 a barrel for the first since July last year as the Chinese disappointment stirred the already festering global recovery concerns.
In a broad sell-off, copper prices slid 3% to a nine-month low of $7,181 a tonne, nickel and aluminium fell to their lowest in more than seven months, while lead and tin sank to five- and four-month lows, respectively.
"The growth numbers out of China are absolutely crucial for commodities and the numbers that came out are significantly worse than people were expecting," said Nic Brown, head of commodities research at Natixis in London.
"China makes up 40% of demand for base metals and all the growth in demand for oil is coming from the developing world so to see weakness in China is bad for commodities generally."
Asian shares outside Japan had reacted with a 0.8% fall and after a steady start European equities gave way too.
Falls of 1, 0.9 and 1.1% on London’s FTSE 100, Paris’s CAC 40 and Frankfurt’s DAX pushed the region’s FTSEurofirst 300 down 1% and MSCI’s world share index, which tracks stocks in 45 countries, down 0.6%. US stock futures also pointed lower.
Falls in gold
The dramatic $100-dollar-a-day drop in gold prices also continued, although it was linked to fear about central bank sell-offs and funds dumping bullion, rather than the Chinese anxiety infecting the majority of markets.
Last week Cyprus revealed it would sell about $400bn worth of gold to help plug its finances and the move has sparked suggestions that larger countries in the region could use the move to cash in on some huge rises by gold over the last decade.
Spot gold was down almost 5% to $1,416 an ounce by 10am GMT, virtually matching Friday’s huge lurch and hitting its lowest since March 2011.
"Breaking $1,500 is not a good sign for gold. We don’t know what the next support level is going to be," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.
"Even though there are some shorts in the market, I think people still want to push the price down. There’s no excuse to push it up, unless there’s a war between North and South Korea.
There should be a rebound as the market is already oversold."
Down Down Under
In the currency market, the commodity-attuned Aussie and Kiwi dollars saw the biggest impact from the Chinese data. China is the biggest customer for many raw material resources and its weakness has an immediate impact on demand.
The Kiwi slumped 1% to $0.8499, stopping short of support at $0.8480 while the Australian dollar slipped further away from a three-month high of $1.0583 marked on Thursday to $1.0434.
The euro also started the week on the back foot as it fell 0.5% to $1.3065.
Friday’s weak US data and a report from the US Treasury warning Japan over currency manipulation ahead of an approaching Group of 20 meeting, continued to weigh on the dollar, meanwhile, sending it as low as ¥97.55 before recovering to ¥98.08.
Analysts are waiting to see whether it pushes past the ÂĄ100 mark but any sign the global economic recovery is faltering could hinder the move if it prompts the US Federal Reserve to keep its stimulus policies in place longer.
"There has been a risk-off reaction to Chinese GDP, which (tends to mean) yen stronger, while the statement on Friday from the US Treasury comes back to the theme of currency wars," said Jane Foley, senior currency strategist at Rabobank.
"There’s the risk of political resistance to a significant fall in the yen," she added.
