Commodity prices may add pressure to Asian markets

Continuing decline in commodity prices and weak leads from both the US and Europe may cause another down day in Asian markets today.

The S&P500 was 1.1% lower having fallen around 3.5% over the past few trading sessions. There doesn’t seem to be much chance of a Christmas rally this year as traders lighten up on trading volumes and take time away from what has been a very turbulent market.

In commodities, copper continues to decline, down another 4.8% overnight and breaking through the U$3.30/lb support level.

Gold is also lower, down to US$1574/oz. it might find some support at current levels but is definitely starting to look vulnerable.

In the currency market, the EUR/USD broke through 1.30 overnight and was last trading at 1.2985. The U.S. dollar currency index is back above 80, perhaps a sign of things to come in 2012.  Traders will be mindful of movements in the dollar and the impact this has on all other markets, including commodities like gold and silver which are essentially a currency play.

Markets are also closely watching the situation in India – one of the important BRIC pillars. Prime Minister Manmohan Singh predicts GDP will grow by 7.5% in the year ending March 31, 2012 while inflation will cool to between 6-7%.

His comments might be perceived as being a little too optimistic. Once the global economy recovers, he hopes for GDP to rise to 8.5%-9% trend growth but exactly when that will happen remains the big question in traders’ minds. Until then, policy response will be closely watched, as is the case in China.