China Puts the Brakes On, Slowing Commodities Markets

Silver, copper, and crude oil all were weighed down this week as Chinese officials announced on Wednesday that bank lending would be curtailed in the coming months. With less money being loaned in China, many traders feared that Chinese demand might dry up, removing support to the commodities markets.

On these sentiments, key markets lost their bullish momentum, turning downward on Wednesday. By Friday morning, copper had dropped 17 cents per pound (-4.8%), crude oil slipped $4.23 per barrel (-5.3%), and silver slumped $1.78 per ounce (-10%), erasing much of their recent gains.

Euro Currency

After pushing up against all-time highs in December, the European currency has experienced a precipitous decline against the U.S. Dollar in the last two weeks. As concerns rose about the financial stability of the PIIGS (Portugal, Ireland, Italy, Greece and Spain), the Euro has fallen in value. In just six days, the Euro dropped from $1.4577 to a five-month low at $1.4027, down 3.8%.

As the U.S. Dollar rose against other currencies this week, it put downward pressure on all of the commodity markets from soybeans to silver. A rising U.S. Dollar makes our commodities more expensive to the global market, depressing demand and domestic prices. Soybeans have been one of the hardest-hit commodities, dropping to a three-month low of $9.40 per bushel on Thursday.

Stock Index Futures

The stock markets were pounded this week as fears of the Chinese slowdown coupled with domestic politics. On Thursday, President Obama called to limit the size of banks and chastised commercial banks for their involvement in investment banking.

His words exacerbated a bearish break that began on Tuesday night and lasted through Friday morning. At one point, the S&P 500 and Dow Jones Industrial Average had both declined by 4%, although stocks showed signs of stabilizing on Friday morning.