(Bloomberg News) Commodities headed for the biggest monthly drop in a year as accelerating inflation in China and the sovereign-debt crisis in Europe fanned speculation economic growth may slow.
The Standard & Poor's GSCI Spot Index of 24 raw materials dropped 6.7 percent this month, the first monthly decline since August and the biggest since May 2010. The index gained 1.4 percent by 2:55 p.m. London time. Silver futures were the worst performer, slumping 21 percent, followed by nickel and cotton.
Commodities ended eight months of gains as central banks raised interest rates to slow inflationary pressure, which climbed to a 32-month high in China, exceeding the government's 4 percent target every month this year. Euro-zone policy makers are trying to control the sovereign-debt crisis that pressured the euro to a monthly loss for the first time in six months.
"The May sell-off is a broad-based risk-averse move coming from a combination of concerns about Europe's debt crisis, China's inflation and U.S. data," Andy Kaleel, chief executive officer of Sydney-based H3 Global Advisors Pty Ltd., which manages about A$600 million ($642 million), said today by phone. "We have seen gains in commodities since 2009 and we have to see the month's declines in that context."
Greek Debt
European Union leaders will decide on a new aid package for Greece by the end of next month, said Luxembourg's Jean-Claude Juncker, who leads the group of euro-area finance ministers.
The region's financial problems aren't confined to Greece and a reorganization of the continent's banking system is necessary, Laurence D. Fink, chief executive officer of BlackRock Inc., the world's largest asset manager, said today in a Bloomberg Television interview.
"The European problem is way beyond Greece," Fink said. "Greece is the most immediate problem. I find it very difficult to restructure Greece without the understanding that we're probably going to have to restructure Ireland and restructure Portugal."
Electricity Prices
The Chinese central bank has raised reserve requirements at banks eight times since November and increased interest rates four times since October. Electricity prices for businesses and farmers in 15 provinces will be higher from tomorrow, the first increase in more than a year, threatening to worsen inflation as the nation aims to curb power shortages that may be the worst on record.
The MSCI All-Country World Index headed for a 2.4 percent drop this month, the most since August. U.S. Treasuries gained 1.5 percent, according to Bank of American's Merrill Lynch index.