Another sharp sell-off in China’s stock market is triggering selling in global equity markets. Overnight China’s Shanghai Index fell as much as 5.1%. The total correction from the top is now over 20%, thereby putting it in the bear market category.
The weakness in the equity markets is triggering a flight to safety rally in the September Treasury Bonds and Treasury Notes. In addition safe haven currencies such as the U.S. Dollar and Japanese Yen are also posting gains.
The Bank of England is dominating the news once again following the release of its minutes from the August 6th meeting. If you recall, at this meeting the BoE voted to expand its quantitative easing program. At the time this news came as a surprise as the majority of analysts surveyed had not expected an expansion. Since this news was released, the September British Pound has topped and started a down trend.
December Gold is expected to feel downside pressure throughout the day if the U.S. Dollar continues to strengthen. Speculation that liquidity issues in China will lead to less demand for industrial metals is expected to pressure December Copper today.
Economic and liquidity issues in China could also have a negative effect on energy prices. Less demand from China, the world’s second largest crude oil user, is expected to exert downside pressure on September Crude Oil throughout the day.
Demand for soybeans could also fall if China tightens up its money. Since announcing its stimulus plan in late 2008, China has gone on a commodity buying spree. If this buying stops and the Dollar rallies, then look for lower prices in November Soybeans and December Corn.
