China’s Economy Cools, Crude Oil Rises |
China's economy cools in the June quarter, but the price of crude oil rose higher. At the moment, crude oil trades around $97.25 (up 0.4%). Other commodities rose as well. The biggest gainer in Wednesday's trading was copper, whose price increased by 1.17% to $4.437. The price of silver was 0.5% above yesterday's close at $36.28. Gold was down, however, falling 0.08% to $1,567.15, while natural gas is trading at $4.322 (down 0.03%).
China is the world's second largest economy, but also the world's largest consumer of raw materials. According to data published today, Chinese economic miracle continues, though at a bit slower pace, as China's GDP grew by 9.5% in the June quarter, down from 9.7% recorded in the March quarter. The Q2 GDP results were widely predicted by analysts. The Chinese authorities are fighting hard to prevent China's economy from overheating, as inflation grew in preceding months. The challenge for the Chinese officials now is to make sure the Asian Dragon makes a soft landing.
If policies of tightening belt seemed to work in reducing GDP growth, their accomplishments are less astonishing when looking into industrial activity and retail sales data. In June, China's industrial production rose at an annual pace of 15.1%, much above 13.3% in May and 13.1% expected by most analysts. At the same time, retail sales expanded by more than expected in June. The latest data showed China's retail sales were up 17.7% in June, from 16.9% in May and above 17% expected by most analysts. Fixed assets investment decreased in June, however. According to the National Bureau of Statistics data, China's fixed assets investment fell in June by 1.04%, compared to a month earlier. In the first half of the year, China's fixed assets investment was still 25.6% higher than in the same period a year earlier.
Strong retail sales and industrial production make new rounds of monetary tightening more likely. China's economy is still expanding rapidly and remains under threat of overheating. China might even be forced to loosen its tightly controlled currency in order to fight inflation. The Chinese yuan made small progress against the U.S. dollar on Wednesday. At around 6:18 am GMT, the greenback retreated 0.04% against the yuan to stand around 6.4705.
The U.S. dollar suffered much bigger losses against the Aussie and the Kiwi. The dollar lost 0.38% of its value against the Aussie to stand around 0.9399. At the same time, the dollar's losses were higher against the Kiwi, as the greenback retreated 0.55% to stand around 1.2154. Australia and New Zealand are major exporters of commodities. Their economies came to rely heavily on the performance of the Asian Dragon, as China's insatiable appetite for raw materials continues to grow.
ACTION ITEMS:
Bullish:
Traders who believe that the Chinese economy will continue to grow strongly, which should provide some steam for the prices of commodities and increase the value of currencies of major commodity exporters, might want to consider the following trades:
- E-TRACS Constant Maturity Commodity Index ETN (NYSE: UCI) is a long play on commodities. UCI will rise if the prices of commodities rise.
- ProShares Ultra DJ-AIG Commodity ETF (NYSE: UCD) is another long play on commodities. UCD will rise more than UCI if the prices of commodities rise.
- WisdomTree Dreyfus New Zealand Dollar Fund (NYSE: BNZ) and CurrencyShares Australian Dollar Trust ETF (NYSE: FXA) are long plays on the Aussie and the Kiwi. BNZ will rise if the Kiwi appreciates, while FXA will rise if the Aussie appreciates.
Bearish:
Traders who believe that the Chinese economy will overheat, sending shockwaves through markets, may consider an alternate positions:
- PowerShares DB Commodity Short ETN (NYSE: DDP) is a short play on commodities.
About the author: Benzinga
 |
