It took a 5% slide in China’s benchmark Shanghai Composite index to drive a stake through the heart of other worldwide equity markets. Investors fear that the Chinese government is growing concerned over a near-doubling in Chinese stock prices throughout 2009 and that they may need to close the door on new investment in its nation’s stocks.
In the United States a report from the Fed’s 12 districts prepared ahead of when the FOMC next meets in August, signs of a bottoming in activity were all the Fed’s regional governors could conjure up. Investors are slowly realizing that scraping along the bottom is as good as it might get and that a bottom
doesn’t necessarily precede a recovery. Earlier this week San Francisco Fed governor, Janet Yellen noted that the recovery could be a long time in coming, despite clear signs that the trough was several months behind us.
As the S&P 500 index started to look distinctly top heavy the clear beneficiary on Wednesday was the greenback whose trade-weighted dollar index rose 1% against the euro, yen, pound, Swedish krone and Swiss franc.
Fear is slowly starting to raise its head again although the pace at which equity markets are falling indicates less concern about a revisit to the kind of panic witnessed in the first quarter. Investors seem to realize that policy settings are appropriate and that should there be a slide back down for economic activity, more stimulus can be added at the appropriate stage. In addition investors also better understand the methods in which both Washington and the fed can respond through various policy tools.
That doesn’t mean to say that we won’t have a market crash anytime soon. We won’t be surprised to see a big down day just appear out of thin air before the week is out.
China’s economy has been recovering courtesy of government stimulus and attempts to encourage investment through pushing bank lending. Some say the efforts to stoke activity might be a touch too much and yet more asset bubbles are in the pipeline.
Copper prices fell in response to Shanghai’s earlier decline compounded by news that stockpiles at the London Metals Exchange rose for the second week in a row since February jumping by 8.6%. The view is growing view is that China has imported more copper than it knows what to do with. Government stimulus has played a healthy role in reviving its GDP, but there’s only so far it can go. What Chinese stimulus cannot do is to bolster GDP data outside of its own economy. Copper pries on the Comex in New York pulled back 3.5% on Wednesday as investors were forced to reassess the situation.
Analysts are now expecting the heady pace of Chinese imports to slow from a first half rate of 280,000 tons to just 100,000 tons while others fear the build-up in copper stockpiling by the state might even lead to some sales with holdings running well ahead of demand.
The price of soybeans fell sharply Wednesday as news spread that the Chinese failed to unload any of its inventory in domestic state auctions. Theories quickly hit the Chicago pits that China has over-imported the beans and local producers won’t buy any of those pricey imports and instead are awaiting a price decline.
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