World economic linkages

[Flubber]

If anyone doubted the global nature of our economy

Market Minute


A move by China's central bank to raise interest rates sent the Toronto stock market down more than 100 points as investors worried the attempt to cool the country's economy could dampen demand for oil and base and precious metals.

Calgary Herald http://www.canada.com/calgaryherald/...a-d3c34329ea8d



This where we are headed in the information age. Demand from China doesn't have to ACTUALLY go down . . . all that is required is their government take an action that is generally designed to slow an economy, and the market starts figuring it into things like stock valuations

[Wezil]

How do we know it was China that caused this drop in the TSE?

The article is no more than you posted and I'm a long way from being an economist......

[Flubber]

Originally posted by Wezil
How do we know it was China that caused this drop in the TSE?

The article is no more than you posted and I'm a long way from being an economist......

I agree and in fact you never know "for certain". And yes the article provides no proof or analysis . Even if the story writer were wrong about this , I still find it an interesting insight into the global nature of our economy that such a drop could be so easily attribued to a Chinese banking move

[Gangerolf]

Yeah yesterday was bad for my little stock portfolio too. That oil price better stay where it is damn it.

[Flubber]

Originally posted by Gangerolf
Yeah yesterday was bad for my little stock portfolio too. That oil price better stay where it is damn it.

ON a personal level, my portfolio feels the same way. I'm actually about to become even more linked to energy since my new job comes with stock options and a program where they match purchases of their stock (up to a limit of course).

[Wezil]

I heard this morning we could expect the market to react to the softwood 'deal'. Maybe this was what the TSE was responding to.

[Gangerolf]

I don't really understand all of the linkages and I know very little about global economics. But I do care about my oil stocks. I think the logic is something like this:

Chinese interest rates going up -> reduced growth in China -> less demand for oil in China -> lower oil price -> stock market down

Anyway, the Oslo SE definately responded negatively to the rise in Chinese interest rates (even though it was only from 5.58% to 5.85%). According to the newspapers.

[Kidlicious]

Bernanke (US Fed Chairman) told Congress yesterday that the US Current Account Deficit is mostly caused by forces outside the control of the US. He said that since the world depends so much on exporting here instead of developing demand in their own countries that Americans could only reduce the deficit a small percent by saving money.

[Flubber]

Originally posted by Gangerolf
I don't really understand all of the linkages and I know very little about global economics. But I do care about my oil stocks. I think the logic is something like this:

Chinese interest rates going up -> reduced growth in China -> less demand for oil in China -> lower oil price -> stock market down

THats the logic but I would insert "and other commodities" in each place where you said oil when it comes to a Canadian analysis. Canada exports a lot more than oil and a Chines slowdown impacts nickle, copper, iron etc etc just as much.

Its just the average person doesn't pay as much attention to those

[DanS]

Canada is a big commodities producer, and China has become the premier commodities consumer for many commodities. Normally, we think about Australia when we think about Chinese commodity demand, but Canada is part of the global market for much of this stuff.

From the FT yesterday regarding "feeding the dragon"...

Last year, China accounted for almost half of the world’s consumption of metallurgical coal, over 40 per cent of thermal coal and iron ore consumption, and more than 20 per cent of steel, aluminium, copper and zinc consumption.

http://news.ft.com/cms/s/cc78bd74-d54a-11da-93bc-0000779e2340.html

This demand has cascaded through the entire commodities market. China is a huge consumer of cement and other infrastructure building materials, f.e.

[DanS]

Oops. Crossposted with Flubber, but said the same thing.

[Barnabas]

What commodities have been hurt by this?

[DAVOUT]

If this move means that China is starting to control its growth, hence its consumption on commodities, we should not complain (except some Canadian shareholders speculating on the stock market : ).

[Flubber]

Originally posted by Brachy-Pride
What commodities have been hurt by this?

I haven't seen that yet but theoretically the change in stock price for commodity companies could predate an actual change in commodity prices by quite some time.

[Flubber]

Originally posted by DanS
Oops. Crossposted with Flubber, but said the same thing.

Yes but you said it better and with nice links and whatnot.