Commodities start the week slower

The slight drop in US stocks could take its toll on the Australian market this week, although China’s policy review in response to economic pressure may insulate commodities, which traded lower in London on Friday.

In an effort to stabilise a slowdown and following The People’s Bank of China’s move to allow banks to offer bigger discounts on loans last week, Chinese economists expect major central banks to take more conventional and unconventional measures in coming months to loosen monetary conditions and encourage bank lending.

China’s inflation slowed 2.3% in June to its lowest level since January 2010.

Bloomberg reported Chinese Premier Wen Jiabao saying the downward pressure on the economy is still relatively large and the government would continue property controls and prevent prices from rebounding, signalling policy alterations to steady economic conditions.

“The big downside risks to economic growth increase pressure for monetary easing,” China International Capital Corporation economists Pen Wensheng and Zhao Yang told Bloomberg.

The International Monetary Fund will cut its world growth estimate this year and managing director Christine Lagarde said the outlook has “regrettably become worrisome”.

Asia’s largest economy grew at its slowest pace in the three years in the second quarter.

This added to the risks of a global recovery already threatened by a worsening crisis in Europe and faltering employment gains in the US.

Wall Street closed in lower territory on Friday with the S&P 500 down 1% to 1354.6 points, the Dow Jones Industrial Average shedding 1% to

12,722.4 points and the NASDAQ falling 1.3% to 2937.3.

European markets also closed the week on lower ground with Euro Stoxx down 2.2% or 49.4 points to 2235.5 and London’s FTSE 100 fell by a fraction to 5662.6 points.

Commodities on the London Metal Exchange all posted a loss with nickel recording the highest drop of 3.3% to $US16,110 per tonne followed by aluminium falling 2.4% to $US1863/t.

Comex gold fell marginally by 1.9% to $1578.90 an ounce and silver shed 2.7% to $26.89/oz.

The ASX 200 futures index this morning is trading at 4111 points. The Australian dollar had dipped 0.3% to trade at $1.018.