China – inflation remains high but markets are calm

Consumer prices in China rose by 5.3% yoy in April. This is slightly less than in March (5.4%) but at the same time above market expectations (5.2%). High inflation means that the People’s Bank of China will have to continue tightening monetary policy. Markets reacted calmly - the deviation from the market expectations was not large and it has been partly “offset” by a lower rate of PPI (6.8% instead of the expected 7%). Nevertheless, in the medium term inflationary problems in China will affect negatively prices of industrial commodities- particularly copper.

The oil market - OPEC report and the US fuel inventories

Last week’s sell-off on oil was caused by a reduction in the long speculative positions in fear of a repeat of a scenario from the silver market. When this danger passed, some players returned to the market and hence the observed recovery in the price of oil. Brent oil prices are close to an important resistance around 119.50 USD and thus today’s factors - OPEC monthly report and data on stocks of fuel in the U.S. (16.30 CET, 10.30 ET, the market expects the increase of stocks of oil by 1.5 million barrels) may turn out to have a significant impact.

Events to watch – OPEC and USDA reports, trade balance in the U.S.

Today, apart from the monthly oil market report published by OPEC, USDA will publish its forecasts (World Agriculture Supply and Demand Estimates) for soft commodities market (wheat, corn, soybean) concerning the next growing season (2011/2012). The history shows that USDA forecasts often occurred to have a strong impact on the prices (even changing the long-term market trends). On the macro front we will have the US trade balance (14.30 CET, 8.30 ET, market expects the deficit of 47 bln USD) and the decision of the Polish Central Bank (we expect no change in interest rates).   

Paweł Kordala

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