Written by Sumit Roy  |

April 15, 2011

The Morning Call: April 15, 2011

Details

Commodities receive mixed signals from two key economic reports from China, but precious metals surge to new heights as sovereign debt woes enter the headlines again.

In the headlines today ...

• Economic data from China has most commodities prices off to a choppy start this morning. The highly anticipated batch of figures shows robust growth continuing in the world's second-largest economy, as China's Q1 GDP is up 9.7 percent from a year ago, besting the 9.4 percent expectation. Industrial production, retail sales and fixed assets investment data also beat expectations. On the other hand, the consumer price index for March was quite disappointing, and likely the reason we aren't seeing a decisive upside reaction in commodities. CPI rose by 5.4 percent year-over-year, surpassing the prior month's 4.9 percent and the 5.2 percent consensus. This is the fastest inflation rate since 2008, and suggests that China's central bank will continue to raise interest rates in an effort to cool price growth.
  China's GDP Grew 9.7% in the First Quarter - March CPI up 5.4% | China Vows to Punish Those Responsible for Leaking Economy, Inflation Data

• Gold and silver resumed their march to new heights, with the former notching yet another record high this morning, while the latter surges to fresh 31-year highs. Both legs of the precious metals bull thesis are supporting today's rally. In addition to China inflation, the eurozone's estimate of March CPI growth was revised higher from 2.6 percent year-over-year to 2.7 percent. Key U.S. consumer price figures for March are set to be released imminently, as consensus calls for a 0.5 percent and 0.2 percent month-over-month advance in headline and core CPI, respectively, matching last month's data. Meanwhile, Moody's downgraded Ireland's credit rating to just shy of junk territory; sovereign debt woes have consistently acted as strong catalysts for gains in precious metals, and today is no exception.
  Gold Surges to Record as Global Inflation Concern Stokes Demand | Eurozone March inflation revised up | Moody's Cuts Ireland Rating Two Levels

• Crude oil moved fractionally higher as traders weigh the latest batch of data from China against Libyan supply disruptions, broader worries about the Middle East-North Africa region and the outlook for demand amid elevated prices. On the supply side, the consensus is that Libyan production will stay offline longer than once expected due to the stalemate that has developed in the country. On demand, analysts are divided. Earlier this week, Goldman Sachs suggested that demand in the U.S. in particular may already be faltering. Analysts from Barclays offered an opposing view, stating that, "there is not much in the way of solid evidence that oil demand growth has yet slowed to a more sustainable level from the unsustainably high pace of growth seen in 2010 and earlier this year."
  Battle of the Oil Analysts

• Continuing this week's theme, the agricultural complex is notably weak this morning. Wheat has fallen for five sessions straight, as prices continue to trade under those for corn on the Chicago Board of Trade. Supply-side optimism is swinging upward. Said one analyst, "there's an expectation that a good Northern Hemisphere crop will weigh on prices. We're already seeing signs of that out of Russian and Ukrainian markets."
  Wheat Declines, Erasing Advance, as Russia and Ukraine May Add to Supply

• While most base metals rose on the LME today, copper fell. The Chinese government reported that output of refined copper rose 24 percent over last year in March, suggesting that the world's largest consumer of the metal was well-supplied for now. Meanwhile, steel futures fell to a one-week low, pushing down iron ore prices as well. "It is possible the Chinese central bank will raise the bank reserve requirement again or interest rates," said one trader. "This will have an impact on the steel market because a lot of steel purchases are supported by bank loans."
  Copper in London Erases Gains on China Supply, Demand Outlook | Iron Ore-Shanghai rebar at 1-week low on tightening fears

What to Watch For:

8:30 a.m. EDT: U.S. Consumer Price Index (March)

10:00 a.m. EDT: Baker Hughes Rig Count