People’s Bank of China liquidity injection boosts commodity markets
As the unofficial news came out of the People’s Bank of China liquidity injection into the country’s five major banks, commodities staged a recovery.
Commodities entered into an upside correction, as the news spread of the PBOC’s 500-billion yuan injection into its major banks, striving to prop economic growth. The front-month contract for West Texas Intermediate crude oil spiked up to $95.19 for a daily close of$94.88, a 2.10% increase. The Brent crude rallied to 99.45, a four-day high, closing at $99.05, a 1.20%rise.
Gold gained for a second consecutive day and the benchmark Comex contract rose by 0.13%. On Wall Street, earlier gains were reversed, with investors expecting the FOMC meeting.
There has been no official statement by China’s government, but the news made market anticipate the PBOC additional liquidity to be pumped in the five largest Chinese banks for a quarterly period. It is widely believed the stimulus measure is a tool of responding to the August disappointing economic data. The industrial production last month, for example, climbed by 6.9% year on year, slowing down from the July 9% growth. The reading was the lowest since December 2008 and much below market expectations. August retail sales increased by 11.9%, missing forecasts for a 12.1% rise, and the July number at 12.2%.
Today the FOMC meeting is in the limelight. The Fed is expected to slash another $10 billion of its QE program, and the final $15 billion would most probably be shed in October. The statement might contain a clear signal of the QE ending in October. While economic developments have improved, policymakers would continue to trace the hefty labor market slack. There is no certainty about the Fed’s statement containing the promise of interest rates to be kept on hold for “considerable time”. If this part is missed, this would be taken as a signal of a potentially earlier rate hike.
