SHANGHAI, Aug. 25 (SMM) -- Out of market expectation, the latest economic data from China and the US did not slip, reducing risks of a hard landing for economic growth and boosting financial markets in China and the US. In response, Shanghai base metal market stabilized to certain extent, and investors' sentiment eased slightly.
Recently, China's central bank gave a hint about taking the prudent monetary policy as the main tone in the future, and the bank raised the yield of its one-year bills by 8.58 basis points to 3.5840% through open market operations, exceeding the benchmark one-year deposit interest rate of 3.50% and breaking the record that the yield of one-year central bank bills remained at 3.4982% for seven consecutive weeks. Jumping yield of central bank bills triggered market fears that China's central bank will again raise benchmark interest rates in the near future, but SMM believes there is little chance the bank will hike interest rate to curb liquidity in the near term under the context of current unstable external environment. In addition, markets expect China's inflation to drop in August, which also reduce the probability of further tightening of monetary policy, and China's central bank will more likely maintain current monetary policy. In general, China's central bank may tend to regulate market liquidity through open market operations after the yield of central bank bills is raised, which will create a relatively stable environment for domestic financial markets.
The latest US economic data relatively improved recently, with orders for US durable goods in July much higher than expected, and with US property price index for June also better than forecasts, helping ease speculations of the announcement of QE3 by the US. In addition, US Senate Committee on Budget cut its budget deficit, also boosting market confidence. In this context, global gold prices slumped on August 24th, down as much as 5.6%, the largest intraday decline since March 2008. Prices for the most actively traded Nymex 1112 gold contracts plunged USD 104/mt to close at USD 1,800/oz, a decline for the second consecutive day, while gold prices were down USD 30/oz on August 23rd, a signal that risk aversion sentiment had eased. Bernanke's speech on Friday will be the market focus next week.
As all countries showed strong concerns to save the market and the negative factor of a US credit downgrade was gradually absorbed, more buying emerged in the financial markets. However, markets are still confronted with more fluctuant risks, and there haven't been a fundamental resolution to debt problems in Europe, Japan and the US. Therefore, SMM believes there is still possibility that global economy will slip into another recession, and that investors shall pay close attention to further market trends.