Financial markets eased last week amid concerns over economic growth in China and the Eurozone, overshadowing continued strength in the US economic data. Earlier in the week, Miner BHP Billiton stated that that 'the big infrastructure build' in China 'clearly will come to some end' and 'steel growth rates will flatten, and they have flattened, and we still see positive growth out to the middle of the next decade'. Rio Tinto Group also stated that 'the rate of GDP growth in China is more immediately slowing'. Yet, the management remains 'confident on the basis of the figures we have seen, of a soft landing, with solid growth for this year'. The China Association of Automobile Manufacturers cautioned that China's car sales may miss their 8% growth forecast this year as 'the slowing economy and rising fuel costs curb buying'. Weaker macroeconomic outlook may make the growth rate to fall below 5%. According to Gu Xianghua, deputy secretary general of the Association, 'the slowing macro-economy will make it difficult to secure loans for commercial vehicles, restrictions on car ownership such as in Beijing, and car ownership costs such as fuel and parking fees are increasing'.
On Wednesday, the PBOC announced to cut reserve requirement ratio in 379 more branches in rural areas of the Agricultural Bank of China. The scheme was initially applied to 563 branches in 8 provinces. The reduction of the ratio by 2% is expected to free up RMB 23B. Yet, it is expected that such easing measure is insufficient and further accommodative means are required as the economic outlook has deteriorated.
A preliminary report by the HSBC and Markit showed that China's manufacturing PMI slipped to 48.1 in March from 49.6 a month ago, suggesting that the sector remained in contractor territory over the past 5 consecutive months. Worse still, sentiment on various components (including new orders, new export orders, output and employment) weakened during the month. This was inline with market concern that the country's economic growth and demand are moderating.
Crude oil prices moved range-bound for most of the week due to the tug of war between supply shortage and the concerns over global economic recovery. The front-month contract for WTI crude oil trade within a range of 104.50 and 108.37 while the equivalent Brent crude contract fluctuated within a range of 122.3 and 127.06. The contracts ended the week losing -0.18% and -0.54% respectively.
While investors have been concerning over the negative impacts of high oil prices on global economic recovery, recent developments in Iran have suggested that oil supply may be at risks.
The US wants 12 countries (including china and India) to ban oil imports from Iran. Yet, Japan and the EU were exempted from the measures for 6 months. While Saudi Arabia stated that it was ready and able to meet needs of its customers, the fact that spare capacity in the world's largest oil producer is declining sharply remained worrisome.
The DOE/EIA reported that gas inventory increased +11 bcf to 2 380 bcf in the week ended March 16. Stocks were +766 bcf above the same period last year and +835 bcf, or +54.0%, above the 5-year average of 1 545 bcf. Separately, Baker Hughes reported that the number of gas rigs fell -11 units to 652 in the week ended March 23. Oil rigs slipped -4 units to 1 313 and miscellaneous rigs dipped -1 unit to 3, sending the total number of rigs to 1 968 units. Directionally oriented combined oil, gas, and miscellaneous rigs climbed +3 units to 231 while horizontal rigs decreased -6 units to 1 174 and vertical rigs fell -13 units to 563 during the week.
Precious metals remained pressured last week with palladium being hit hard. Palladium prices dived to 650.4, the lowest level in January 2012, on Thursday before recovering and closing at 659.9 on Friday. The -5.96% decline was probably driven by the weak PMI data in China, disappointing car sales forecasts in the countries as well as the disappointing Chinese trade data. Palladium imports plunged -27% y/y to the lowest since February 2009. Yet palladium demand is expected to improve later in the year after implementation of tighter emissions legislation.