SINGAPORE, Jan 22 — Commodities markets shivered today in the face of US President Barack Obama’s threats of tough restrictions on how banks make money in riskier assets, fuelling fears of slower growth and softer demand.
Oil and copper languished near four-week lows, gold flirted with a three-week low and platinum lost ground, while agricultural commodities drooped.
Yesterday saw a collective market flinch anticipating pain to come after Obama proposed rules to curb some banks’ most lucrative and risky operations, which the president blames for helping to cause the global financial crisis.
US stocks fell as much as 2 per cent, their biggest one-day percentage drop since October, as financial shares in particular were hit by the plans.
“Of course, any sort of market regulation isn’t good for the market, and if you start limiting hedge funds that hurts overall market flexibility,” said Kenichi Hirano, operating officer at Tachibana Securities in Tokyo.
“I don’t think the proposal is very realistic and it’s hard to know if it’ll ever come to pass, but investors want to wait and see. Today’s response is largely just a shock reaction.”
Commodities, though loosely regulated by comparison with other asset classes, took an especially hard hit. Crude oil, gold and base metals all got a beating as investors reassessed the cost of risk and the demand outlook for industrial raw materials.
“Obama is trying to restrict leverage... (but) it doesn’t make a lot of sense. The basic premise in banking is to transfer risk and a riskless bank doesn’t make sense — or money,” said Steve White, director at Sydney-based treasury advisory firm Noah’s Rule.
“Having said that, I understand why he may want to control trading risk appetite,” said White, but added capital adequacy rules could take care of most that.
“The combination of China tightening and reducing US banks’ lending ability may limit growth prospects. If people continue to deleverage, it will reduce the potential for growth and commodity demand.”
Beijing has already moved to stem runaway investment and its consequences for inflation, with higher short-term bond yields and bank reserve requirements, in a bid to draw some liquidity out of the market and keep the economy from bubbling over.
But an acceleration in consumer inflation to 1.9 per cent in the 12 months to December, from November’s 0.6 per cent figure, may reinforce worries about possible economic overheating.
Nymex crude for March delivery fell 20 cents to US$75.88 (RM258) a barrel by 0451 GMT (12.51pm Malaysian time), after settling down US$1.66 at US$76.08 a day earlier.
Oil earlier hit a low of US$75.62, its weakest since Dec 23, and copper also gave up an early half a per cent rally on the London Metal Exchange, falling US$40 to US$7,225 a tonne and near a four-week low touched in the previous session at US$7,220.
Commodity markets have also faced headwinds in the past week from the dollar, which has risen more than 2.5 per cent versus the euro, but the greenback turned lower on Friday, down 0.2 per cent at US$1.4116.
Gold has lost 3 per cent so far this week and is on track for its softest performance since mid-December.
By 0005 GMT, spot bullion was quoted US$3.90 weaker at US$1,090.30 an ounce, approaching a three-week low of US$1,088.30 hit yesterday.
Platinum, which has been a high flier, touching 17-month highs this week, also stalled, falling 1.5 per cent to US$1,571.50.
“The correction we are seeing now is not surprising and in our view quite healthy but in our view platinum has the best fundamental view of the precious complex and we expect it to outperform in the basis of the rebound in auto demand,” said Joel Crane, commodities analyst at Morgan Stanley in Melbourne.
“We also think the new exchange traded funds will have a significant impact on the physical market. Against a backdrop of some long-term supply constraints, it’s a pretty good story.”
Tocom rubber plunged by 5 per cent to 286.6 yen per kg having hit a 16-month high last week, but the cash market in Thailand was around 56-year peaks, while yesterday raw sugar extended 29-year highs in New York by inching closer to the key psychological target price of 30 cents a lb.
In grains Chicago Board of Trade wheat for March delivery fell 1.3 per cent to US$4.93-½ a bushel by 0323 GMT. March soy was down 0.3 per cent US$9.51-¼ a bushel and March delivery corn lost 0.7 per cent to US$3.69-½ a bushel. — Reuters
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