By Nicholas Santiago on October 19th, 2010 10:10am Eastern Time
This morning most commodity stocks are selling off sharply after China raised interest rates by 25 basis points. While this move by the Chinese could slow down their economy it will certainly effect many commodity stocks. Commodity stocks will usually trade higher when the Chinese government continues to post positive economic news. This move by the Chinese is also likely to have caused the U.S. Dollar Index to spike higher. The U.S. Dollar Index is now trading higher $1.01 to $77.94. This is a lot of meat and potatoes in the currency world.
Stocks such as Cliffs Natural Resources Inc.(NYSE:CLF), Freeport McMoRan Copper & Gold Inc.(NYSE:FCX), and Southern Copper Corp.(NYSE:SCCO) are all trading sharply lower this morning. These stocks are directly impacted by the Chinese rate hike and the stronger U.S. Dollar Index.
Gold and silver are both trading sharply lower this morning on the back of the stronger U.S. Dollar Index. Since late July gold has rallied higher by 20.0 percent and was really due for a technical pullback or possible correction. Silver has actually outperformed gold recently by climbing higher by 30.0 percent since late August. Silver was also short term extended and overbought. Therefore, any real move higher in the U.S. Dollar Index should put pressure on the precious metals.
Spot crude is also declining sharply today. Crude is trading lower by $2.05 to $81.05. Recently crude has rallied higher by over 17.0 percent since last August. Often when crude trades above the $80.00 level it will become a direct tax on the U.S. consumer.
When the U.S. Dollar index rallies the stock market indexes will deflate and trade lower. This rate hike by the Chinese has helped to lift the U.S. Dollar Index today which will directly put pressure on most commodities.
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