Commodity prices recovered in February after falling in the first month of the year despite China's tighter monetary control regime and US Federal Reserve raising rates for emergency loans to banks which initally sent jitters down the commodity street. However, prices of key commodities have rebounded with crude oil rising as much as 10 percent while key Nymex traded Copper futures have gained 7.1%. Gold gained 2% in February and Spot Gold in New York closed the month at $1,119 still far short of the recent high of $1227 reached in early December.
LME -3 month delivery copper closed at $7195 after hitting a high of $7214 earlier. Returns form Reuters Jeffries CRB Index was up 3.5% in February as against 6% fall in January 2010.
On February 26th, India's Finance Minister Pranab Mukherjee in his Union Budget for 2010-11 raised excise duties for certain sectors in view of the stimulus package yielding results and at the same time announced increase allocations for agriculture and rural development in what has been termed as an 'aam aadmi' budget. But, doubts persist on the inflationary impact of the budget proposals in view of the hike in excise duties for petrol and diesel.
Raw sugar futures surprisingly fell by 20% in February, the biggest monty decline since August 2006, Reuters reported. Sugar futures began February at 30.40 cents, a 29 year high but fell to 23.60 cents on February 27 with the market witnessing its biggest loss on February 22.
US Front-month crude, on a monthly basis in February, rose $6.77, or 9.29 percent, from January, the biggest monthly percentage gain since May 2009. Prices have traded in a range between $69 and $84 a barrel since last October, but $80 a barrel is being reinforced as a key resistance level,
Geo-political concerns and investors taking view of the wider economic data over the past year for signs of economic recovery and a potential rebound in energy demand are supportive of crude oil. On Sunday a senior military official from Iran, the world's fourth-largest exporter of crude, said the country could make European nations suffer by cutting off energy supplies and could target any adversary with its missiles.Iran is disputing its nuclear energy program with the United States and its allies, who say it is aimed at developing weapons. Tehran says it is only interested in power generation and medical research.
Factories around the world enjoyed a bumper February with business surveys showing the manufacturing sector in major economies continued to lead an economic recovery, despite a slowdown in some growth rates.Factory activity expanded across Asia last month, although powerhouse China showed some signs of weakening, while in Europe growth rates hit 30-month highs despite contraction in laggards Spain and Greece, Reuters reported.
It was something of a mixed bag in Asia where factory activity in its main economies expanded, with India and South Korea growing at their fastest pace in around two years but a pair of surveys showed the pace of manufacturing growth in China, the world's third biggest economy, eased slightly, Reuters report added.
Major events of February
Fed raises interest rate for loans to banks. The U.S. Federal Reserve Bank took a critical step in normalizing its monetary policies on February 19th, raising rates for emergency loans made to banks.The Fed raised its discount rate from 0.5 percent to 0.75 percent, a move that is not expected to affect interest rates for consumer or business loans, as would a raising of the federal fund rate, which remains at zero to 0.25 percent. The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy, the Fed said. However, the Fed said it was raising the discount rate in light of continued improvement in financial market conditions.
The move is intended to prod banks to rely on private funding markets for short-term credit and to use the Federal Reserve's primary credit facility only as a back up source of funds, the Fed said
China raises reserve requirements for banks
The People's Bank of China increased reserve requirements among most banks in a move widely interpreted as a step to slow inflation. The bank said small, rural banks would be exempt from the order to increase the reserve ratio requirement half a percentage point to 16.5 percent, meaning a greater share of deposits would need to be kept in reserve at the central bank, where the funds earn little interest, The New York Times reported. More to the point, the funds become unavailable to lend to consumers and businesses. Less money in circulation tends to put downward pressure on prices. In China, prices paid by producers jumped 4.3 percent in January, more than twice the increase in the previous month. Consumer prices rose only 1.5 percent in January, but housing prices have soared, rising 9 percent in a year in some large cities. The move revealed how much U.S. investors have bet on steady economic growth in China through investment in businesses that have a large presence there.
IMF Chief moots new reserve currency as alternative to dollar
International Monetary Fund Managing Director Dominique Strauss-Kahn said that a new reserve currency should be explored as an alternative to the U.S. dollar.
Strauss-Kahn, answering questions after a speech at IMF headquarters in Washington, said a new reserve currency would be intellectually healthy to explore, The New York Times reported. The IMF chief declared the need for a renewed vision of the world monetary body, which was formed in the aftermath of the 1994 Bretton Woods Agreements in New Hampshire, saying the organization must find better ways to uncover financial crises before risks metastasize throughout the global financial system.
As long as the United States maintains sound macroeconomic policies and deep, liquid, and open financial markets, the dollar will continue to be the major reserve currency, the Treasury Department said in an October 2009 report
Japan continues to be second largest economy
Japan's higher-than-expected economic growth in the last quarter of 2009 allowed it to retain its place as the world's second-largest economy, ahead of China. Data from Japan's Cabinet Office Monday showed the economy, aided by higher exports and rising domestic demand, grew at an annual 4.6 percent during the October-December quarter, giving the country a gross domestic product of $5.27 trillion in 2009, against China's $4.9 trillion.
Japan has been in second place, after the United States, since 1968 but China is expected to soon replace Japan as the world's second-largest economy in GDP terms. The U.S. GDP exceeds $14 trillion. The report said the Japanese economy is recovering from its worst post-war recession caused by the global financial crisis which hit exports hard crisis and the yen to appreciate.Everyone (in Japan) knows that China will soon overtake us; it's a country with 10 times the population as Japan and a growth rate of about 10 percent, Masamichi Adachi, senior economist for JP Morgan in Tokyo told CNN. (Japan's economic growth) is just flat, sluggish, and has been that way for the last two decades.
US Consumer Confidence
A wide-ranging survey about the U.S. economy indicates many consumers are still glum about national and personal finances, a research group said. Angus Reid Public Opinion said a recent online poll of 1,008 U.S. consumers found 83 percent of the respondents indicated the national economy is in bad shape. Americans continue to have a glum view of their economy but there are some signs of optimism, researchers wrote. Among U.S. consumers, only 4 percent indicated their own personal finances were in very good shape, while 35 percent indicated their personal situations were good.
Only 3 percent indicated the recession was over, researchers said. If handed $1,000, what would you do?
On average, U.S. consumers indicated they would spend $323 to pay down debt, $243 on day-to-day expenses, such as groceries and gas, and tuck $214 into a savings account.
Consumers indicated $152 would be spent on big purchases and personal items and $69 would be spend on stocks and mutual funds.
US Economic Growth
The Commerce Department raised its estimate of U.S. economic growth in the fourth quarter from 5.7 percent to 5.9 percent.The forecast had called for the gross domestic product estimate to fall to 4.9 percent. That proved to be pessimistic in the second of three estimates the department releases.
In the previous quarter, the GDP rose 2.2 percent.In the fourth quarter, a buildup of business inventories and a 1.7 percent rise in consumer spending helped put the GDP at 5.9 percent. But consumer spending rose slower in the fourth quarter than in the third, which means the buildup of inventories will likely catch up soon with consumer sentiment, which remains relatively weak
US Manufacturing activity
U.S. manufacturing activity grew for the seventh consecutive month in February, the Institute of Supply Management said Monday.
Eleven of 18 manufacturing groups reported business growth in the ISM Purchasing Managers Index, which came in at 56.5 for the month.
The expansion was slower than the previous month, when the Purchasing Managers Index was 58.4. Numbers in the index above 50 indicate growth.
New orders remained above 50 at 59.5, but showed slower growth than January, when the new orders index was 65.9. The employment index, however, showed stronger growth, coming in at 56.1, compared to 53.3 a month earlier.
The production index showed growth for the ninth consecutive month at 58.4 and inventories showed the 46th consecutive month of declines at 47.3.
This is the third consecutive month of growth in the employment index. With these levels of activity, manufacturers are seemingly willing to hire where they have orders to support higher employment, said Norbert Ore, chairman of the Institute for Supply Management's Manufacturing Business Survey Committee.