Block Commodities Rally amid Continuous RMB Depreciation

Date:August 13, 2015

Wednesday (August 12), with a further depreciation by 1%, RMB hit a record high trading volume of over US$56.8 billion. The intervention of People’s Bank of China (PBoC) pulled it away from the session low. The overall decline of China’s macro indexes in July started the second half of the year unfavorably. The shock of the RMB exchange rate grabbed the close attention of every central bank on the globe. Vice Chairman of Federal Reserve Bank claimed that it was appropriate for China to adjust its exchange rate. The industrial output in the Euro Zone contracted while the employment rate data in the UK met the expectation. The substantial decline of dollars drove up the oil prices. Gold prices went up for the fifth consecutive day. Base metal rebounded from the low marks.
On Wednesday, RMB/Dollar spot exchange rate declined by a further 1%, hitting a three-year low. Though the central parity rate continued to drop by one thousand points, plunging the spot market during the session, the intervention of PBoC from the point of 6.43 triggered a speedy rebound near the end of the spot market. The session low of the spot market was reported at 6.4510, a four-year low mark, but the close of the market saw a rebound to a three-year low since July 24, 2012.
The monthly economic data indicated a higher risk of the downturn of the Chinese economy. The industrial added value in July fell far short of expectation, with its growth rate down to 6%, the third lowest rate since the financial crisis. Power generation saw a year-on-year decrease of 2% this month, compared to a 0.5% increase last month. The year-on-year increase rate of fixed investments in the first seven months declined from 11.4% in the first six months to 11.2% in the first seven month, failing to live up to the market expectation. The growth rate of real estate development and investment fell from 4.6% to 4.3% between January and July. The overall retailing volume of consumer goods increased by 10.5% year on year, slightly lower than the expected 10.6%.
In the US, Vice Chairman of the Fed and President of New York Fed Mr. Dudley pointed out that it was appropriate to adjust RMB exchange rate if the Chinese economy fell short of the expectation of the Chinese government. This was the first public response of the Fed to the depreciation of RMB.
As far as the economic data are concerned, in the US, the job openings in July according to JOLTS were 5.249 million, a little away from the expected 5.35 million but remained at a high level.
In Europe, the industrial output of July in the Euro Zone didn’t live up to expectation. Industrial output in July decreased by 0.4% month on month, while the expectation was 0.1% decline. May saw a 0.4% decrease month on month and a 1.2% increase year to year, while the expectations of its month-on-month and year-on-year increase rates were respectively 1.7% and 1.6%.
In the UK, the employment report in June met the expectation. Up to June, the three-month ILO unemployment rate in the UK was 5.6%, matching the expectation and was at the same level as May.
In Australia, the vice president of Australian central bank called for close observation of the depreciation of RMB, claiming it might trigger unexpected chain effect.
As to block commodities, most of them rebounded from the session low, due to the decline of dollars. As a result of the decline of dollars and the decrease of US crude oil stock, the US crude oil futures rose by 0.5% at 43.3 dollars a barrel. Gold prices went up for the fifth consecutive day, hitting a three-week high. Spot gold prices grew by 0.9% at 1119.1 dollars. Base metals rebounded after the slump of the Asian market on Wednesday, with copper prices increasing by 1.3%.

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