The Federal Reserve giveth, and the People's Bank of China taketh away.
For a while, it seemed that commodity futures prices had nowhere to go but up. Then speculation that the Chinese central bank would cut back on loose money by raising its interest rates sent commodity futures brokers and traders fleeing for the exits, sending a broad swath of assets tumbling.
U.S. equities lost value, with Dow Jones Industrial Average index futures slipping 57 points to 11,185 and S&P 500 index futures down 10.1 to 1,201 at 11:30 a.m. EST.
Nasdaq 100 index futures dropped 23.5 points to 2,149, while Brazilian Bovespa index futures rumbled 754 points to 71,064.
In Europe, the Irish debt situation also played a significant role; FTSE 100 index futures lost 16.5 points to 5,791. One of the few indexes to notch up a gain was in Japan, where Nikkei 224 index futures rose 20 points to 9,760. China might have had he worst of it, with Hang Seng index futures down 509 points to 24,186.
Precious metals, which have surged on the back of inflationary expectations, dropped precipitously. Comex December gold futures were down $27.10 to $1,376.20 per troy ounce, while December silver futures crashed $1.115 to $26.29 per troy ounce. Copper declined 8.65 cents to $3.936 per pound.
Oil took a hit, too, with Nymex West Texas International light, sweet crude oil futures losing $2.22 to $85.59 per barrel on expectations that tighter monetary policy would slow growth in the world's second-largest economy.
The moves in the Chinese market were even more dramatic, reported Bloomberg News. On the Zhengzhou Commodity Exchange, cotton futures for May delivery lost 7.5 percent, the exchange-imposed limit, while sugar futures for December delivery lost 5 percent.
"The government already sold stockpiles of cotton, sugar, aluminum and zinc, and there's speculation that it may do more to suppress prices and contain inflation," Tian Feng, an analyst at the Bank of China, told Bloomberg News. "There's also market speculation that the government may sell additional sugar stockpiles, as well as soybean stockpiles."
The Chinese government is extremely concerned about inflation, which can both cause asset bubbles and foment civil unrest as prices rise. "There's talk of an interest-rate hike over the weekend," Wu Kan, a fund manager at Dazhong Insurance Co, told the news service. "It's quite possible given how inflation has accelerated."
However, some analysts and investors in China see panic selling, which could indicate a rebound from the current levels in the coming weeks. Assets like silver and gold are particularly volatile when interest rates and currency policy are so uncertain.
Ever since its economy begin expanding at double-digit rates and it became a manufacturing powerhouse, China's task has not been stimulating growth but holding it back, preventing it from overheating. The nation's central bankers worry less about unemployment and more about preventing bubbles or price rises.
Yet as Chinese consumers earn more and demand more goods in greater quantities, some degree of inflation may be inevitable. Many believe that Chinese real estate has already entered a bubble – and only time will tell how it deflates.
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