Strong Dollar Slow China Hit Commodities

Commodities extended declines to a five-year low on speculation the strengthening dollar and signs of slowdown in China will curb demand for raw materials.

The Bloomberg Dollar Spot Index has climbed for the past five weeks and Chinese data from industrial production to manufacturing was below economists forecasts.

“We’re seeing a kind of mental capitulation by investors,” Jon Bergtheil, an analyst at Citigroup Inc. in London, said by telephone today. “The fundamentals are getting worse. The strong dollar because commodities are measured in dollars is normally bad news for commodities.”

The Bloomberg Commodity Index dropped 0.5 percent to 118.8843 by 8:55 a.m. in New York after earlier today trading at the lowest since July 17, 2009. Nickel led declines with a 2.8 percent drop, and cotton retreated 2.3 percent.

Gold fell as much as 0.6 percent to $1,208.80 an ounce, the lowest since Jan. 2, silver sank to a four-year low and platinum dropped to the lowest this year. Brent crude declined 0.8 percent to $97.59 a barrel and copper slumped 1.6 percent to $3.0415 a pound.

Commodities are 12 percent lower this quarter, set for the biggest such loss since the financial crisis in 2008. China’s Finance Minister Lou Jiwei said in a statement yesterday that growth in Asia’s largest economy faces downward pressure.

“We are looking at a downturn right now as China continues to disappoint,” Justin Smirk, a senior economist at Westpac Banking Corp., said today by phone from Sydney. “It’s about the uncertainty that people are worried about.”

A preliminary reading on the HSBC Holdings Plc and Markit Economics China Purchasing Managers’ Index for September will probably show a drop to 50 from 50.2 in August. A reading above 50 shows expansion. The report is due tomorrow.

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza