Commodities madness reaches fever pitch
Chinese investors are sending shock waves through global commodity markets as they pile into futures. Retail investors, high net worth individuals and wealth managers have caused a surge in commodities trading over the past couple of months.
The madness has surprised western investors and rattled global commodity markets, causing a sharp run-up in the price of steel and iron ore futures.
In an attempt to cool the market and reduce the high volumes, the regulator increased transactions fees and margin requirements on Chinese commodity futures. This led to the large fall in iron ore prices we have experienced.
- sponsor - Wealth Know How
Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
Published on 17 May 16
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Chinese investors are sending shock waves through global commodity markets as they pile into futures. Retail investors, high net worth individuals and wealth managers have caused a surge in commodities trading over the past couple of months.
The madness has surprised western investors and rattled global commodity markets, causing a sharp run-up in the price of steel and iron ore futures.
In an attempt to cool the market and reduce the high volumes, the regulator increased transactions fees and margin requirements on Chinese commodity futures. This led to the large fall in iron ore prices we have experienced.Sponsor - Wealth Know How
Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
-
Venezuela tension heats up
Duration 03:16
-
Aussie dollar surprises market
Duration 03:10
-
Markets climb as investors watch US healthcare bill
Duration 02:31
The madness has surprised western investors and rattled global commodity markets, causing a sharp run-up in the price of steel and iron ore futures.
In an attempt to cool the market and reduce the high volumes, the regulator increased transactions fees and margin requirements on Chinese commodity futures. This led to the large fall in iron ore prices we have experienced.
All this has significant consequences for Australia as our currency, economy and stock market are influenced by the price of iron ore. And having the price of iron linked to Chinese retail investors is not ideal.
Looking beyond commodities, global markets seem spooked again about the potential for global recession with stock markets around the world falling.
These expectations only make sense if they are founded on fears of a very slow global economy. But the data is still a mixed picture. So perhaps it’s no wonder there is little conviction amongst investors.
To confuse matters even more, people are buying inflationary assets indicating they are concerned about inflation - even though central banks are not.
Since the beginning of the year, gold has risen 20 per cent to about $1,300. This enthusiasm for gold is just one of several signs the market is starting to shift from its preoccupation with deflation.
Meanwhile as global markets are buying inflationary assets, the Reserve Bank of Australia downgraded it inflation outlook. This sent yields on Australian bonds to record lows.
The RBA now sees core inflation of 1 - 2 per cent this year, compared with the 2 - 3 per cent it flagged in February. Looking out to June 2018, the RBA expects core prices to rise 1.5 - 2.5 per cent.
Although Australian yields are at record lows, they are still much higher than the comparable bonds of other developed markets like the US, UK and Germany. In Japan, nearly all rates along the yield curve are now comfortably in negative territory.