The more
optimistic analysts among us are suggesting that it’s bargain time on the
commodities market, as the downward slide continued yesterday. The benchmark
S&P/ASX-200 index dropped 60.9 points, or 1.2%, to 4976.8 yesterday,
while the Nikkei-225 index fell 213.45 points to 15,693.75. Banks and base
metals led the slide, with the big four banks showing losses, as well as sharp
falls in the prices of oil, copper, gold, tin and
aluminium.

However, the release of the latest report on US gross domestic product
returned some confidence to the sagging market. GDP was revised up to
show a 5.3% expansion, while the report’s key inflation gauge was at a
very respectable 2.0%. Consequently, the overnight US market saw solid
gains with the Dow Jones Industrial Average increasing 0.87%, or 96.21
points, to 11,213.53.

Early Australian
market reports, like this one from the AFR,
indicate the there may be comparable gains today on the Australian
market.

Part of this
recent volatility arises from the US Fed’s decision to leave the market in the
dark regarding future monetary policy; after two years of widely advertised
interest rate hikes, Chairman Bernanke has now indicated that future policy will
be dependant on economic data. The only problem is that the data is mixed. For
example, last night’s low inflation data comes on top of fears of inflationary
pressure, following the US Labor Department reports of higher than expected
CPI

for April.

On that front,
everyone will be on tenterhooks regarding the release of the US personal
consumption expenditure core deflator for April
tonight.

One of the
favourite scapegoats for market volatility is rapacious hedge funds. Today’s
Ozreports
that hedge funds are driving base metals volatility: “The price of
copper on the London Metal Exchange was as much as 2% higher in early
trade, but still about 10% below the record price reached on May 11, as
trade volumes decline while speculative hedge funds desert the market.”

Henry calls for
calm, echoing gold producer
Kingsgate Consolidated’s chairman Ross Smyth-Kirk that the markets are just fine. Good luck to those people making money off the
volatility, but we shouldn’t waste too much print needlessly worrying about a
market bust when demand from China and India
remains strong.

Read more at
Henry Thornton.

Peter Fray

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