SINGAPORE: Commodities, except gold, may fall when Asian markets open on Monday as investors fret over S&P's downgrade of the United States' AAA rating, but losses should be capped by hopes growth in big commodity consumer China will stay robust.
Bullion should benefit from the renewed uncertainty although expected declines in oil, base metals and grains may be short-lived with investors seen on alert for any opportunity to buy at weakened prices. Strong economic growth in China -- the world's top copper consumer, No. 2 oil user and major buyer of grains -- as well as tight global supplies for some raw materials including coal and iron ore, will also support commodity prices.
Standard & Poor's cut the long-term US credit rating to AA-plus on Friday, saying the country's efforts to put its fiscal house in order fell short of what would be necessary to stabilise the government's medium-term debt dynamics.
The unprecedented blow to the world's largest economy, a move that over time could ripple through markets by pushing up borrowing costs and making it more difficult to secure a lasting recovery, prompted global policymakers to hold an emergency conference call on Sunday to discuss the debt crises in the United States and Europe.
"I don't think commodities will take the downgrade very well. The market's certainly in a bearish mood and this just does nothing to improve that," said Citigroup analyst David Thurtell.
"But it should be an orderly decline, nothing to panic about. The important thing now is that confidence doesn't slip too far," he said, adding investors were likely to buy on dips.
The US dollar may weaken and Treasury yields rise on Monday after S&P's move, though any selling is likely to be tempered by the escalating crisis in the euro zone.
The Reuters-Jefferies CRB index , the 19-commodity benchmark, fell nearly 4.5 percent last week, its steepest drop since a rout in early May fuelled by concerns about a stalling global economic recovery.
US oil and Brent crude may drop after rebounding from steep intraday losses on Friday, when data showing a forecast-beating 117,000 rise in US non-farm payrolls last month helped tame fears the US economy may be courting another recession.
London copper should lead base metals lower and grains may also retreat, while gold could retest new peaks. Gold hit an all-time high of $1,681.67 an ounce on Thursday, its 10th record in 18 sessions.
"The initial reaction will be a high degree of uncertainty and thus volatility since investors will not know where to turn for safety," said Mark Mobius, executive chairman of Templeton Emerging Markets group which oversees $50 billion in emerging market assets.
"During the sub-prime crisis safety was in US dollars and US Treasuries. Now that anchor to the global community is deteriorating," he said in an email to Reuters.
But when the initial shock is over, analysts said other commodities should regain ground as investors bet on China's growth.
With China's economy, the world's second largest, continuing to expand strongly, "commodities could be a bit of a haven on a China play," said Thurtell.
"China is still growing strongly and increasingly its growth is becoming less dependent on the US and the rest of the world. "China has not excessively borrowed, they've got a pretty good fiscal position, they've got very high foreign exchange reserves, so China's got the ability to keep growing and that's the bottom line in commodity markets," he said.
Despite Beijing's monetary tightening, the country's copper imports jumped 19.7 percent in June from a 30-month low in May, and analysts see copper prices heading to record near $11,000 a tonne before year-end on the strength of Chinese demand.
A steep fall in Shanghai-traded commodities on Friday could also keep Monday's losses in check with buyers ready to scour the market for bargains.
Shanghai commodity futures, from base metals to rubber and rebar steel fell between 2-6 percent on Friday, with aluminium and zinc hitting their downside limit, following an exodus in US and London markets the day before on mounting global economic concerns.
Copyright Reuters, 2011
Comments
Comments are closed for this article.