Hu's Driving the Markets?

Chinese President Hu Jintao visited Washington this week in his first visit in five years. At the centerpiece of the visit were trade negotiations, which underscored China's growing dominance of the global economy. Early Thursday morning, the Chinese government announced that their economy grew over 10% in 2010. The blistering pace at which that country is expanding has spurned inflation, especially in food prices. Unlike the United States, where consumers have yet to feel the pinch of inflation, Chinese citizens have been watching food prices climb 7% over the last year.

To fight rising inflation and slow their economy down, Chinese authorities may be forced to raise interest rates. Fearing that slowdown in economic activity could cause demand for raw materials to wane in the future, investors sold many of the positions they held in silver, crude oil, and soybeans on Thursday.

Despite Thursday's sell-off, most traders expect that China's role in the world economy will continue to expand, as will their demand for raw materials. The average Chinese citizen has seen an eightfold increase in income over the last 20 years, which means that China's 1.4 billion people have money burning in their pockets. Recently, they have used their newfound wealth to buy automobiles, build new houses, and add more meat to their diet, all of which have increased demand for natural resources around the world.

Corn is King

Corn prices keep working higher, reaching new 2.5 year highs at $6.67 per bushel on Friday. Corn climbed amid strong U.S. export sales and record ethanol production. Analysts are expecting that higher corn prices will eventually diminish demand for corn, but livestock feeders, ethanol producers, and foreign buyers have not shirked from high prices yet. Over the last seven months, corn prices have risen $3.42 per bushel, or 105%.