Commodities are very sensitive to Chinese news these days. This morning Chinese stocks briefly entered a so-called bear market as stocks have dropped at the Shanghai bourse by 20% since August 4th. Chinese stocks are under pressure as the market is concerned that the authorities will curb the current excessive lending growth. There are a lot of rumours that money meant for real investments has ended up in the stock market.
The reaction has been a strong sell-off in the business sensitive base metals. Copper is down more than USD 200 to 5.875. Commodity markets naturally fear that the Chinese government will have to tighten monetary policy to avoid a bubble building up in housing and the stock market. Tighter Chinese monetary policy will hurt Chinese commodity demand negatively.
Oil got a boost last night as the API crude oil inventories showed a huge drop of 6.1mb. It is the third week in a row with lower API crude oil stocks. It might be a further indication that the OPEC cuts and the recovery in the US economy are finally eating into stocks. We will know more tonight when the more influential DOER stocks are released.
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