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China’s Producer Prices Surge in September

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  • China’s Producer Prices Surge in September

Growing domestic demand and reduced industrial capacity in China increased factory prices in September.

The Produce Price Index climbed 6.9 percent year-on-year in the month, up from 6.3 percent in August. This is faster than the 6.4 percent forecast by economists in September.

Manufacturing PPI sub-index rose 7.3 percent, the highest in nine years. Aggressive reduction in capacity of steel and cement industries, coupled with growing demand have contributed to the increase in prices in the recent month.

The Chinese government in August announced it would reduce concentrations of airborne particles called PM2.5 by 15 percent year-on-year in 28 northern cities from October 2017 to March 2018 to meet smog targets. This aggressive cut amid strong economic momentum bolstered factory prices.

“The economy has pretty strong momentum now, monetary policy remained loose ahead of the 19th Party Congress, and the environmental cleanup has cut the supply of commodities,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. “But this is not sustainable. Deleveraging will be moving up on the agenda after the congress.”

Meanwhile, Consumer Price Index increased by 1.6 percent, down from 1.8 percent recorded in August. While, prices of consumer goods climbed just 0.7 percent. Meaning falling food prices is still dragging on headline inflation and would likely compel the People’s Bank of China to maintain current monetary policy to better support the economy.

“Weak CPI means the PBOC has no pressure in pushing up policy interest rates, and perhaps gains a little bit more tolerance towards the softening rates in the interbank market,” said Tao Dong, vice chairman for Greater China at Credit Suisse Private Banking in Hong Kong. “This doesn’t change the tune of financial deleveraging in China. With the Party Congress being concluded soon, I would expect a modest yet persisting deleveraging.”

Zhou Xiaochuan, the Governor of People’s Bank of China warned on Sunday during a panel discussion at a Group of 30 seminar in Washington held in conjunction with the International Monetary Fund that corporate debt in China is too high.

“We need to pay further effort to deleveraging and strengthen policy for financial stability,” Zhou said. Investors believe further credit control would lead to price increase and hurt exports of trading partners like Australia and New Zealand.

However, strong PPI reading showed the economy is pretty robust in the second half of the year with a moderate growing demand. The economy is expected to grow at about 6.8 percent in 2017.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial market.

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Silver Joins Haven Assets That Pullback on Dollar Strength

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Silver Pulls Back on Dollar Strength

Silver pulled back on Friday after Donald Trump-led administration announced it was working on a new stimulus package to ease economic burden of the American people.

The United States dollar gained as investors jumped on it to hedge against US-China trade tensions.

Silver that has risen to almost eight years high of $29.84 on Thursday pulled back after the US government announced its plan on a new stimulus package.

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The haven asset, like Gold, pulled back to $27.97 on Friday during the New York trading session.

“While there are no early chart clues to suggest the gold and silver markets are close to major tops, both are now getting short-term overbought, technically, and are due for downside corrections in the uptrends,” Kitco Metals senior analyst Jim Wyckoff said in a note.

“And remember that with the higher volatility and bigger daily price gains seen at present, there will also be bigger downside corrections when they come.”

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Gold Pullback on Dollar Strength on Friday

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Gold Pauses its Bullish  Runon Dollar Strength

Gold pulled back from its record rally on Friday after the US dollar received a boost from the new stimulus.

The world’s safe-haven asset pulled back from $2074 per ounce it traded on Thursday to $2030 on Friday during the New York trading session.

XAUUSDWeekly“We’ll see some pullback (in gold) from these levels with USD bottoming for a while and maybe even see some strength in the USD in the near term, which will reverse these gains but not entirely,” said Spencer Campbell, director at SE Asia Consulting Pte Ltd. “People will be looking to re-enter the market on any pullbacks in precious metals as the medium to longer term views are significantly higher.”

Gold rose to an all-time high of $2074 on Thursday after rising over 35 percent on the back of the COVID-19 pandemic. However, economic uncertainties due to the second wave of COVID-19 continues to support gold rally and expected to continue until a concrete solution or vaccine is discovered.

“There are mixed signals that the economy is recovering and some of the signs of recovery are relatively superficial as they show aggregate figures and not how medium and small enterprises continue to suffer,” said Jeffrey Christian, managing partner of CPM Group.

“We have a very long way to go before we see a proper economic recovery.”

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Finances of International Oil Companies Suffered in the Second Quarter

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Finances of IOCs Plunged Amid COVID-19 Pandemic in the Second Quarter

Global leading oil companies suffered substantial losses in the second quarter, according to their various financial statements published in recent weeks.

On Thursday, Royal Dutch Shell posted $18.9 billion loss in the second quarter of 2020, far below the profit of $3.5 billion posted in the same quarter of 2019.

This, the company attributed to the plunge in global oil prices in 2020 due to the COVID-19 pandemic. Shell warned that oil demand remained uncertain, adding that it had cut its exploration plans for this year from about 77 wells to just 22.

This was after the price of Brent crude oil plunged to $15 per barrel during the peak of COVID-19 pandemic while the price of West Texas Intermediate crude oil dipped to -$37 per barrel, the lowest on record.

Also, the company said it has reduced its capital expenditure for the year from the initial $25 billion to $20 billion amid a plunge in revenue and demand for the commodity.

Similarly, ExxonMobil reported a $1.1 billion loss, its biggest decline on record. The oil company also announced it would be lowing spending by 30 percent in 2020 to about $23 billion.

Among the various oil companies posting negative financial statements for the quarter was Chevron Corporation, the company reported $8.3 billion decline in the second quarter of the year. The lowest ever posted by the oil giant in almost three decades.

Chevron, therefore, warned that the havoc caused by COVID-19 pandemic in the energy sector might continue to weigh on earnings.

“While demand and commodity prices have shown signs of recovery, they are not back to pre-pandemic levels, and financial results may continue to be depressed into the third quarter of 2020,” Chevron’s Chairman and Chief Executive Officer, Michael Wirth, said.

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