Commodity prices declined in European as strong Chinese macroeconomic data fuelled speculations on stringent tightening in the world's second largest economy. Strength in the US dollar also weighed on commodities. The front-month contract for WTI crude oil price rebounded after finding support above 90 (intraday low at 90.17). Yet, price remained below yesterday's close. Copper fell for a second straight day amid reduced Chinese demand. LME copper for 3 months' delivery jumped to a record high of 9781 yesterday, before plunging to around 9550 today.
Headline CPI in China eased to +4.6% y/y in December from a 28-month high of +5.1% in November as driven by strong base effect last year. Food prices remained the key contributor to the rise in headline CPI although the component moderated to +9.6% from +11.7% in November. Non-food prices edged higher to +2.1% from +1.9% in the prior month. Although headline CPI slowed in December, it stayed at elevated levels and remained the top macroeconomic risk in Chinese economy. It's likely for CPI to rebound in coming months due to surge in commodity prices, seasonally strong spending during Chinese New Year and overhang of monetary growth. The market currently expects the People's Bank of China will raise interest rates in February/ March. A rate hike before Chinese New Year (from February 3) will be an early surprise.
Stock markets fell after strong Chinese data amid concerns over tightening. In Asia, the MSCI Asia Pacific Index slipped -1.4%. Bourses in Hong Kong and China contracted -1.7% and -2.9% respectively. European shares moved divergently with FTSE 100 and DAX losing -0.64% and -0.1% while CAC 40 adding +0.04%.
Copper declined for a second day after surging to a record high of 9781 yesterday amid worries about slowdown in Chinese demand. Indeed, the correction is reasonable. While further decline cannot be ruled out, it will not change the uptrend formed in recent years. Global demand will continue to exceed supply, resulting in wider deficits in coming years. Analysts forecast deficits from 500K-650K metric tons this year.
On the macro front, US existing home sales probably rose to 4.92M in December, up +5.13% from 4.6M in the previous month. Philly Fed index is expected to have climbed to 22.3 in January from 20.8 a month ago. Leading indicated might have fell to +0.7% in December +1.1% in November.