Commodities edged higher in European session as driven by robust Chinese macroeconomic data. The front-month contract for WTI approached 92 though near-term resistance at the level remained quite strong. Precious metals rose with gold and silver climbed modestly higher. Platinum surged to highest level in more than 2 years while palladium price jumped to a new decade high. Weakness in the USD has also helped commodity prices.
Phoenix Television reported that China's inflation moderated to 4.7% y/y in December from 5.1% in November. CPI rose +3.3% for the whole of last year, while PPI climbed 5.9% during the period. Meanwhile, the economy grew +10.3% in 2010, slightly higher than consensus of +10.2%. While the data have not been confirmed by the government, they have boosted market sentiment as growth has not been damped by tightening measures.
Last Friday, the People's Bank of China raised the reserve requirement ratio by +50 bps. This was the 4th hike in the RRR over the past 2 months. Investors should be cautiously awaiting the series of macroeconomic data to be released tomorrow by the National Bureau of Statistics.
The market appeared to be calm although EU finance ministers delayed in expanding the size of the bailout fund. While peripheral yield spread widened, European stocks and the euro jumped. Some interpreted the delay means the EU is confidence that peripheral countries can deal with the problems themselves. We doubt the ability of peripheral countries and believe Portugal or Spain will be the next, after Ireland, to seek EU/IMF bailout. Moreover, the euro rallied as the market priced in an early ECB rate hike after President Trichet said last week that the central bank will act if needed to contain inflation risks. Council member Ewald Nowotny and Athanasios Orphanides clarified recently that the current monetary policy is appropriate and would not need to be changed in the near future. Renewed weakness in the euro (strength in the dollar) may weigh on gold.