US more responsible for commodity price rise than China

ZURICH (Commodity Online): In a significant remark, major global investment bank UBS said the United States, not China, poses bigger threat to global commodity prices.
In a report, the bank said, the US, not China, represents the biggest threat to the economic conditions which have gusted commodity prices higher, flagging the risk presented by a change in central bank policy.
Concerns that China, a huge buyer of raw materials, would come down hard on inflation this year - cramping economic growth and demand for commodities with it - have been assuaged by the release of official economic targets for 2011.
Chinese authorities said they were aiming for economic expansion of 8%, growth in money supply of 16% and inflation of 4%, 1 point higher than last year, "all higher than consensus policy expectations", according to the bank.
"Overall, the China policy announcements over the past fortnight have been benign, and certainly more benign than consensus," UBS said.
Concerns that China, the top importer of commodities including cotton and soybeans, would prove over-zealous in its monetary tightening represented a recurrent headwind to commodity markets last year.
However, the "biggest threat" to the bullish outlook for commodities was the risk that America might be tempted to ditch its so-called "QE2" programme of economic stimulus, the second round of quantitative easing, and push the sector into retreat.
"That would worsen the risk/reward profile – it would turn our dollar fund flows signal from green to red - and a more significant correction would be possible."
Such a policy turnaround might be made possible by a string of upbeat data, the bank said, flagging data showing a 17% rise in small business borrowing in November as "the most bullish signal" for the US economy of late.
Furthermore, a switch in the make-up of the US central bank's important federal open market committee, with a board change due later this month, "might nudge the committee towards a less dovish tone, and lead them to question whether to continue QE2".
However, the bank, which made its comments in a note aimed primarily at investors in miners and hard commodities, said it ultimately remained "structurally bullish".
With economic risks moving from deflation to inflation, implying rising costs of raw materials, "it is a bullish environment for commodities and miners".

(Source: http://www.commodityonline.com/news/US-more-responsible-for-commodity-price-rise-than-China-35512-3-1.html)