Toronto Gold Bullion Newsletter Archive - Daily FX report dated 12/05/2011

Canada's retail market now equals the American market on a per capita basis, according to Colliers International, as a surging Canadian dollar and increased spending draws U.S. retailers north.

The rout in commodities markets continued today, pulling down stocks and the Canadian dollar , fuelled by economic jitters and another move by China to curb inflation.

"Today’s trading pattern can be summed up by ‘risk off,'" said Scotia Capital currency strategist Camilla Sutton.

"The combination of higher margins at the CME, a temporary halt in the crude futures complex yesterday, a hike in China’s reserve ratio, rising fears over global growth, concerns over Europe, strong U.S. export data and soft European and Australian data have sent shivers down the spines of traders. In this environment equities and commodities are weak and the [U.S. dollar] is broadly stronger."

The commodities rout began early from where it left off yesterday, then picked up some speed after China boosted reserve requirements on the country's banks again. The drop in oil was pushed along by a new forecast by the International Energy Agency, which trimmed its outlook for fuel demand by 0.2 per cent.

Prices for commodities such as oil , gold , silver and copper slipped.

Global stock markets also fell. Tokyo’s benchmark Nikkei fell 1.5 per cent, and Hong Kong’s Hang Seng 0.9 per cent. In Europe, London’s FTSE 100, Germany’s DAX and the Paris CAC 40 were down by between 1.2 per cent and 1.6 per cent by about 8 a.m. ET. Dow Jones industrial average and S&P 500 were also lower.

“Having stabilized through the Asian session, commodities, and with them commodity currencies, are weaker again in Europe,” said Adam Cole, global chief of foreign exchange strategy at Royal Bank of Canada.

“Crude is down another US$1 at US$97.20 a barrel and most other hard and soft commodities are following,” he added ... Equities are weaker across the board, with energy and basic materials leading the way. Once again, it is difficult to identify an immediate catalyst for the fall in commodity prices or risk appetite more generally, but as usual [U.S. dollar] and [Japanese yen] are the main beneficiaries.”

Article provided via the Globe and Mail

http://www.theglobeandmail.com/report-on-business/top-business-stories/commodities-rout-continues-sinks-stocks-canadian-dollar/article2019315/

" China hopes to drain its economy of excess money, one of the main drivers of high inflation " ...

China’s central bank increased the reserve requirement ratio for its commercial banks by another 50 basis points on Thursday, extending its campaign to calm prices despite initial signs of slowing in the economy.

The increase, the eighth since October, will raise the reserve requirement ratio to a record 21 per cent for China’s biggest banks.

The increase will take effect from May 18, the central bank said in a terse statement on its website.

By forcing banks to lock up deposits they would otherwise have lent, China hopes to drain its economy of excess money, one of the main drivers of high inflation.

“The central bank is moving the deposit reserve ratio again to soak up liquidity as hot money inflows and current account surplus remain large,” said Xu Biao, an economist with China Merchants Bank in Shenzhen.

The central bank sold 40 billion yuan ($6.2-billion U.S.) of three-year bills in regular open market operations on Thursday as apart of its efforts to mop up excessive cash in the economy.

China’s factory output growth in April eased much more than expected, government data showed on Wednesday, suggesting the economy is cooling even as inflation remains stubbornly high at 5.3 per cent in the year to April.

Policy makers, targeting 4 per cent average inflation for 2011, have declared inflation-fighting their top priority this year after high food prices raised fears of broader inflation that could destabilize the economy or even spark social unrest.

A wall of cash from foreign direct investment, China’s gaping trade surplus, and maturing central bank bills and repos, is set to pour into China in coming weeks and months.

Analysts expected China to raise the reserve requirement ratio to 21.5 per cent by December, a Reuters poll in April showed.

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