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China Steps Up Measures to Curb Inflation

As the US market closed for the Thanksgiving holiday, investors' focus was on sovereign crisis in peripheral European economies. EU Commission for Economic Affairs Olli Rehn said he expects that the bailout talk will conclude by late this month or early next month. Yet, this failed to improve confidence in Ireland. Yield spreads between 10-year Irish and Spanish bonds and German bunds widened further. Today in Asia, commodity prices moved with a soft tone with the front-month contract for WTI crude oil trading at 83.8 currently. The contract extended rally Thursday's rally to as high as 84.53 earlier in the day. Gold traded sideways with the benchmark contract hovering around 1380. Base metals fell. Apart from weakened market sentiment, China's measures to curb speculations might have affected appetite.

WTI crude oil price surged to a 2-year high of 88.63 in early November as Fed's announcement of additional QE measures had sent USD lower. Moreover, investors speculated that Fed's liquidity injection would stimulate oil demand. However, price failed to advanced further and recent strong rebound in USD has made it trading within a range of 80-85. At an interview in London, OPEC Secretary-General Abdalla El-Badri said the cartel is comfortable with prices at around 78 and doesn't expect price to reach 100 this year. Moreover, OPEC will not increase supply unless there is 'real' oil demand.

In China, the government is stepping up measures to curb inflation. The Shanghai Futures Exchange announced it will increase margins and daily price limits on commodity futures it trades. After the market closes on November 29, margins on copper, aluminum, steel wire, gold and fuel oil will rise to 10%, steel-reinforcing bars and zinc to 12% and rubber to 13%. Daily price limits for all products will widen to 6% from November 30. The National Development and Reform Commission (NDRC) described the government's move as measures to 'clamp down strictly on market manipulation and other illegal activity, and curb excessive speculation'. This has sent the public a signal that the government is committed to curb speculations and cool inflation. We believe a rate hike is imminent and should have negative impacts on commodity prices, especially oil and base metals.

On the dataflow, Japan's national core CPI contracted -0.6% y/y in October, easing from -1.1% in the prior month. The leading Tokyo core CPI dropped -0.5% y/y in November. Economic indicators in Europe and the US are sparse and the attention should remain on the European periphery.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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