Macro-Economic Headwinds Blowing Harder

May 14, 2012 01:02 AM

What Traders are Talking About:

* European concerns escalate. Greece remains at a political impasse after weekend talks failed to form a new government. That sent German bunds to record highs overnight and pushed Spanish and Italian bond yields higher. There is growing concern Greece may not live up to previous agreements needed to secure emergency funding, which would lead to the country defaulting on its sovereign debt. Talk of Greece leaving the euro-zone has gone from speculation to a real concern. Such a move would send the region, which is already in economic turmoil, into a potential frenzy that could ultimately lead to the breakup of the euro.

The long and short of it: Building euro-zone concerns are not only a threat to the investment world, including commodities, but also to the global economy. It's not to this point yet, but recent happenings have investors concerned a 2008-like crash is possible.

* China cuts bank reserve requirements. The People's Bank of China announced Saturday it is cutting bank reserve requirements 50 basis points, effective May 18. That's the third easing of monetary policy, following previous cuts to bank reserve requirements in November and February, as the Chinese government tries to boost economic growth. The announcement came following disappointing April economic data released last week But Chinese stocks and most Asian stocks failed to get a boost from the news as this move was widely expected and concerns in Europe, China's top customer, are building.

The long and short of it: The cut to bank reserve requirements is expected to release up to 400 billion yuan ($63.4 billion) into the Chinese economy and will make it easier for importers of raw materials to get lines of credit. But if there aren't customers to buy the goods they will use the raw materials for, Chinese importers will be reluctant to tap all of the credit available to them.

* ICE starts grain trade. The IntercontinentalExchange (ICE) kicked off nearly around-the-clock grain trading with the launch of its electronically traded grain and soy futures last night. ICE grain and soy futures have the same contract size, minimum tick size and daily price limits as the Chicago Board of Trade (CBOT). The ICE grain and soy futures contracts are cash settled against CBOT contracts.

The long and short of it: The biggest question with the ICE grain and soy futures is trading volume, which was very light overnight. Unless that changes, the ICE contracts will be more of a novelty than a challenge to CBOT grain and soy futures.


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