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China Plummets Again

Last night the Shanghai Index declined by nearly 3.00 percent again. Since November 8th, 2010 the important Shanghai Index has declined lower by nearly 15.0 percent. The decline comes as the Chinese economy reported a stronger than expected gross domestic product(GDP) of 9.8 percent. The Chinese consumer prices Index(CPI) was reported at 4.6 percent. The CPI number was actually in line with expectations, however, inflation continues to surge in the country.

Many investors are now blaming the Federal Reserve Bank's quantitative easing program for the spike in Asian inflation. You see all commodities are traded in U.S. Dollars, which makes the dollar the worlds reserve currency. When the Federal Reserve Bank creates massive cash reserves by purchasing U.S. Treasuries this causes most commodities to inflate. Copper, gold, oil, corn. wheat, soybeans, and most other commodities are now beginning to pullback after recently making new highs for the year. The reason for the commodity decline is because most Asian countries are now forced to raise interest rates in order to fight the high inflation that these countries are experiencing. Recently, there have been food riots breaking out in various countries around the world due to the high inflation. Even in the United States the American people are complaining about higher gasoline and food prices. Inflation is simply everywhere now.

Leading commodity stocks are under pressure today due to the expected increase in Asian interest rates. Southern Copper Corp.(NYSE:SCCO) is trading lower by $1.31 to $45.38 a share. Freeport McMoRan Copper & Gold Inc.(NYSE:FCX) is trading lower by $5.16 to $110.07 a share. Investors can see how copper is declining just by following these two leading copper stocks. Cliffs Natural Resources Inc.(NYSE:CLF) is a leading iron ore pellet producer that is trading lower by $2.55 a share to $84.91. This tells us that many industrial commodities around the world are declining today. Gold and silver are also declining sharply this morning.

The iShares FTSE/Xinhua China 25 ETF(NYSE:FXI) is declining today by 1.74 percent this morning. This highly popular ETF follows the Chinese market and could come under further pressure in the near term.

Nicholas Santiago