Commodities shrug off liquidity injection


It was another ugly day for domestic commodities yesterday as the majority of the most traded futures fell by more than 1 percent on concern about the health of the Chinese economy and renewed worries that the eurozone may collapse.

The August copper contract on the Shanghai Futures Exchange (SHFE) lost 1.88 percent to end at 56,260 yuan ($8,903.17) per ton, the lowest closing price since January 11. The contract opened 0.42 percent higher, but had fallen into a steep decline by mid-morning.

The heart of the problem was the People's Bank of China's (PBC) announcement over the weekend that it will cut the proportion of funds that banks must keep in reserve by 0.5 percent on Friday.

Although slashes to the reserve requirement ratio (RRR) often induce a wave of bullishness, this time was different, said Jia Zheng, a base metals analyst for Shanghai East Asia Futures. "The markets saw the 0.5 percent RRR cut as a sign that the domestic economy is bad," she told the Global Times.

The cut followed a host of disappointing economic data last week, indicating that the PBC made the move in hopes of bolstering the economy, said Zhang Xi, a base metals analyst with Luzheng Futures.

"It means the government recognized there was a problem and pushed more money into the market to save it," he told the Global Times.

Still, the RRR cut failed to win over the markets, possibly because there was already ample liquidity in the interbank market, banking insiders told Reuters yesterday.


2005-2011 All Rights Reserved 京ICP备05069564号-1