Since the debt worries in the Eurozone are not expected to deteriorate in the immediate future, we feel that risk aversion could grip global financial markets during the second-half of this year.

On a year-to-date basis, commodities like base metals, crude oil and natural gas have slumped sharply as against a rise in the bullion pack. Since the beginning of 2010, worries over the Eurozone have taken center stage and affected sentiments across the globe. Commodities like industrial metals and the energy pack witnessed downside pressure as the sovereign debt contagion in the Eurozone raised worries over demand for commodities. Zinc and Lead have been the worst performers this year as the metals have declined almost 30% on a year-to-date basis. Gold prices have managed to shine as the yellow metal gained 10% on a year-to-date basis and continues to attract demand as a safe-haven.

Base metals pack declined sharply this year as economic fundamentals has affected prices. Risk aversion in the financial markets also affected demand for higher-yielding and riskier investment assets. A slowdown in manufacturing activity in China indicated that the country was successful in slowing down the overheated economy. Also, the European debt situation weighed heavy on the global financial markets and the sovereign debt crisis has caused a sharp depreciation in the euro. Concerns about public finances in Hungary also weighed on sentiment. A major downside trigger to base metals in the month of May was the fall of the euro to a four-year low. The euro fell to a four-year low against the dollar on concern that the Eurozone's debt crisis could spread to its banking system. A weaker euro makes metals more expensive for non-US investors. At the same time, the European Central Bank (ECB) issued a warning that the Eurozone banks face up to 195 bn euros in a second wave of potential loan losses over the next 18 months due to the financial crisis. This dampened market sentiment further and led to selling pressure across the base metals pack.

The Analyst Magazine, Commodity Slump, Global Recovery, Global Financial Markets, Industrial Metals, Investment Assets, Sovereign Debt Crisis, European Central Bank, Banking System, Eurozone Banks, Financial Crisis, Organization of Petroleum Exporting Countries, Global Crude Oil Consumption, Chinese Government, Eurozone Debt Crisis.