Financial markets remained in choppy trading in Asian session on Monday. Although Chinese government's reduction in RRR might help stimulate growth, pessimism continued amid uncertainty in European election outcomes. Investors also worried the banking sector in Spain will need to be bailed out eventually despite reforms. Commodities remained under pressure with the front-month contract for WTI crude oil falling to as low as 95.17 and the equivalent Brent crude contract to 111.72. Comex gold continued to trade below 1600.
The People's Bank of China announced to cut the Reserve Requirement Ratio (RRR) by -50 bps, lowering the ratio of large financial institutions to 20.0% and pumping around RMB 400B of liquidity into the banking system. The move was expected to be driven by recent disappointing economic data. Apart from weakness in trade, industrial production and inflation released last week, monetary data for April also came in lower than expected. M2 money supply growth fell -0.6% 12.8% y/y in April, below the target of 14%. New RMB loan came in at RMB 681.8B, compared with RMB 1 trillion reported in March. It is hoped that the increase in liquidity in the market would spur economic growth.
In the Eurozone, it appears more likely that a new election will be held in Greece in June as there's little chance that a government will be formed after the current election. The SYRIZA leader Alesis Tsipras was reported to have said that the pro-bailout parties were asking him to be their partners in crime. It's expected that the re-election would be more polarized, either to the New Democracy party, whose leader, Samaras, would attempt to renegotiate about the bailout and austerity program, or to the SYRIZA party which proposed immediate program suspension. Worse still, in Germany, Chancellor Angela Merkel's Christian Democratic Union (CDU) was defeated in the North Rhine-Westphalia election. The Social Democratic Party of Germany (SPD) is has now won in 11 of Germany's 16 states.
The economic calendar is light today. For the rest of the week, the focus will be on the BOE inflation report. Policymakers are expected to unveil their outlook on the UK economy. The RBA and the Fed will also release meeting minutes.
Commitments of Traders:
With the exception of natural gas, speculators were bearish over the energy complex in the week ended May 8. Net length for crude oil futures fell -42 683 contracts to 183 960. Net length for heating oil slipped -13 645 contracts to 13 215 while that for gasoline dropped -12 355 to 74 392. Net short for natural gas futures fell -8 031 contracts to 113 770.
Speculators were also bearish towards precious metals. Net length for gold futures dipped -17 090 contracts to 123 303 while that for silver declined -3 021 contracts to 12 563 contracts. For PGMs, net length for platinum decreased -873 contracts to 15 728 while that for palladium dropped -1725 to 5 053.