This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Bernanke, Chinese Data to Weigh on Commodities

NEW YORK ( TheStreet) -- Commodities are giving back some of the gains made early in the month.

The catalysts are the congressional testimony from Federal Reserve Chairman Ben Bernanke suggesting potential reductions in quantitative easing stimulus, and weak manufacturing data out of China indicating declining demand for fuel and metals.

Most of the commodities losses have been seen in oil and copper, but the weakness has been widespread. The Standard and Poor's GSCI Index (which catalogs 24 commodities) has shown weekly declines of more than 1% after the data and commentaries were made public.

These moves are not entirely surprising. Copper is generally viewed as a key indicator of economic activity because of its substantial uses in construction projects.

China is the world's largest consumer of copper, and the country's most recent manufacturing data showed contraction for the first time in seven months. This, in conjunction with the possibility of tighter monetary policy in the U.S., creates a greater likelihood we will see declining demand for raw materials into the beginning of next year.

Chinese Data

Preliminary readings in the HSBC Purchasing Managers' Index showed that manufacturing activity in China contracted for the month, falling below the survey's 50 line, which signals expansion.

The report for May showed a result of 49.6, down slightly from the already weak April reading of 50.4. This follows the U.S. manufacturing purchasing managers' index, which dropped to a seven-month low of 51.9 for May, following a 52.1 reading for April.

Globally, the broad trajectory toward weakness here is clear, and commodities markets are set to head lower in response. In addition to its substantial metals imports, China is also the world's second biggest consumer of oil.

This month's contraction in manufacturing activity signals that a major trend change might be in place, and this limits the prospects for construction building in Asia's developing city centers.

The sector acts as the main driver of economic activity, so it is not surprising to see that declining manufacturing figures have contributed negatively to GDP growth in China. Chinese GDP dropped to 7.7% for the first quarter, slowing slightly from the 7.8% rate that was seen for all of 2012 (the weakest yearly pace in 13 years).
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
AAPL $125.42 0.72%
FB $85.76 -0.04%
GOOG $520.51 -0.19%
TSLA $268.26 2.38%
YHOO $39.29 0.98%

Markets

DOW 17,619.51 +23.16 0.13%
S&P 500 2,063.12 +5.48 0.27%
NASDAQ 4,986.8670 +28.3990 0.57%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs