Gold and oil prices fell sharply in Asian trading on Monday as more Covid infections grabbed attention across the region, especially in China, overshadowing July’s surprise acceleration in producer price inflation in that country.
Monday saw news of more travel curbs in China, but this was ignored by equity investors as markets in Hong Kong and China rose (Japan and Singapore were closed for holidays).
Goldman Sachs downgraded its growth estimates for China for this year and early 2022, blaming the latest outbreaks of Covid across the country. The cuts followed a similar move last week by Nomura.
But oil and gold sold off in Asia after Friday’s slump in Europe and the US as the Us dollar firmed in Asian dealings.
Brent crude futures slid $US1.41, or more than 2%, to $69.29 a barrel, after having slumped 6% last week, the biggest weekly loss in four months. US West Texas Intermediate (WTI) crude futures fell $1.32, or 2.4%, to $66.65 a barrel, after having slumped nearly 7% last week in their steepest weekly slide for nine months.
Spot gold fell 2.3% to $US1,722.06 an ounce. Earlier in the session, prices touched $US1,684.37, their lowest since March 31.
Comex gold futures slipped 2.1% to $US1,726.40 in Asian trading but rose to $US1,746 as European dealings started. Silver slumped as much as 7.5% hitting a more than eight-month low of $US22.50 an ounce earlier in the session.
Investors also ignored news that China’s Producer Price Index rose faster in July than in June, hitting an annual rate of 9.0% last month, up from 8.8%. At 9% the PPI is back to where it was in May.
Month on Month it rose 0.5% in July after June’s 0.3% rise even though the price of most commodities eased last month.
Oil prices were a small factor and iron ore prices fell sharply in July – down around 15% for the 62% Fe fines product from Australia. But they were still higher than a year earlier, like oil prices.
Prices in the coal mining and washing and ferrous metal extraction industries jumped 45.7% and 54.6% in July year on-year, respectively.
China’s ban on Australian coal imports plus a shortage of coal elsewhere in Asia and strong demand from power stations in Japan and South Korea, as well as Taiwan, have seen thermal coal prices more than double in the past year which has added to the pain of high costs for Chinese power companies and consumers.
China’s “zero tolerance” policy to COVID cases will probably put further stress on the supply chain, and inflation pressure may persist in the second half, said Zhang.
A separate release from the National Bureau of Statistics showed that the consumer price index (CPI) in July rose 1.0% from a year earlier, compared with a 1.1% gain in June and still well below the government target of around 3% this year.
Month-on-month basis, the CPI rose 0.3%, compared with June’s 0.4% decline.
The core consumer price index, which strips out volatile food and energy prices, stood at 1.3% on year, versus a 0.9% rise in June.
Meanwhile, China reported 125 new COVID-19 cases, up from 96 a day earlier as restrictions on travel and movement grew across the country.
The curbs include flight cancellations, warnings by 46 cities against travel, and limits on public transport and taxi services in 144 of the worst hit areas.
The central Chinese city of Wuhan (where the original infection first appeared) has completed a round of all-inclusive nucleic acid testing within five days to contain the latest COVID-19 resurgence, local authorities said Sunday.
Around 11.3 million residents were tested from last Tuesday to Sunday.
By Saturday, Wuhan had registered 37 locally transmitted confirmed cases and 41 locally transmitted asymptomatic carriers in the latest outbreak.
Yangzhou in Jiangsu Province has now reported one high-risk area and 75 medium-risk areas for Covid with a lockdown in place across the city.
In Malaysia and Thailand, infections continue to hit daily records of more than 20,000.
