Markets officially re-opened Monday after an extended holiday weekend, though trading was relatively light thanks to prolonged vacations and the fallout from a blizzard that dumped two feet of snow across much of New York. Stocks stayed in a relatively tight range for much of the session, as a lack of earnings reports or any key economic data releases gave those traders who did clock in little direction.
The biggest story on Monday came out of China, where the government raised key lending and deposit rates by a quarter of a percentage point on Saturday. The move represented Beijing’s latest efforts to tap the brakes on a red hot economy that is expected. Concerns over inflationary pressures in the world’s second largest economy have intensified in recent months, and the move to bump rates higher didn’t come as much of a surprise. It did take some of the wind out of the sails of commodities, as expectations for reduction in Chinese demand set some resources back slightly. Crude oil closed under $91 is a session that saw trading of less than half the daily 2010 average on many exchanges.
One of the biggest winners on the day was the iPath Dow Jones-UBS Copper ETN (JJC), which gained 0.9% on Monday. While concerns about weakening Chinese demand weighed on most commodities, copper prices continued an impressive climb thanks to lingering supply issues. COMEX copper futures closed at a new record on Monday, thanks to a weaker dollar and ongoing supply issues at one of Chile’s largest copper mines. The Dona Ines de Collahuasi copper mine, which accounts for about 3% of annual global supply, suspended sales contracts last week after a fatal accident at its port. Most investors shrugged off the impact of China’s rate hike on copper prices. “Food inflation and energy inflation have been big there, that’s why the market didn’t take it as any great surprise,” said Charles Nedoss, senior market strategist with Olympus Futures. “There’ll probably be two more [rate hikes] in the next few months. China is still two percentage points below where they were before the financial crisis.”
Among the losers on Monday was the MSCI Brazil Index Fund (EWZ), as Brazilian equities tumbled after expectations for inflation were revised upward. A survey of economists put the 2010 year-end forecast for inflation at 5.90%, up from 5.88% a week earlier. The average estimate for 2011 inflation was 5.31%, well above the central bank’s target of 4.5% for next year. Brazilian stocks were also down on news of the rate hikes in China; trade between the two nations has increased in recent years, and resource-rich Brazil has benefited from China’s insatiable appetite for raw materials.
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Disclosure: No positions at time of writing.