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14 January 2011

Precious Metals Sell Off on Chinese Reverse Hike

Written by dslmpartners
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Global equities are headed lower after a nice bull run early this week, with profit-taking likely being seen after PBOC move. Asian stocks dropped, sending the MSCI Asia Pacific index down 0.4%, its first loss in two days. In Europe, stocks are retreating for a second day with the Euro Stoxx 600 down 0.7%. German stocks retreated with the Dax down 0.3% led by large losses in the materials sector, while the FTSE also fell for a second day, erasing the index’s weekly advance. The US markets rallied on the back of better than expected earnings from JP Morgan.

Global bond markets are mostly lower after a string of stronger inflation data. Three-month euribor has jumped the most since October following Trichet’s hawkish comments. Euro zone spreads, meanwhile, are mixed with the peripherals under a bit of pressure after comments from an IMF official suggested euro skepticism persists.

Retail sales in the US rose by 0.6% compared to the prior month, according to the Commerce Department. Excluding the volatile components of cars and gas, retail sales rose 0.4% in December. Economists surveyed expected a 0.9% increase. Still, it was the sixth sales gain in a row, including an unrevised 0.8% increase during November. The government's numbers echo what retailers reported last week in their monthly sales update. For several store chains, the holiday shopping season finished weaker than it started because of frugal customers and severe weather in different parts of the country.

PBOC hiked reserve requirements 50 basis points to 19%, effective January 20. Equity markets and so-called risk assets have taken it on the chin so far today, as recent tightening moves by China have tended to hurt risk appetite due to fears of a hard landing there. A soft landing should be engineered through a combination of policy rate hikes, reserve requirement hikes, and currency strength throughout 2011. Gold and Silver moved lower, touching support.