Did China Just Trigger Commodity Markets?
The Commodity Report #174
Did China Just Trigger Commodity Markets?
China’s central bank last week announced a new stimulus package to the economy to curb the growth decline that is still going on.
Chinese stocks jumped and also “Chinese-linked commodity prices” like soy, copper and steel gained momentum as Governor Pan Gongsheng announced plans to lower borrowing costs and inject more funds into the economy, as well as to ease households' mortgage repayment burden. Pan told a news conference the central bank will in the near future cut the amount of cash that banks must hold as reserves - known as reserve requirement ratios (RRR) - by 50 basis points (bps), freeing up about 1 trillion yuan ($142 billion) for new lending. Further measures aimed to boost China's crisis-hit property market include cutting interest rates for existing mortgages and lowering minimum down payments on all types of homes to 15%.
Reuters called the package the “most aggressive stimulus since the pandemic”
I think that China has reached a "policy bottom." The PBoC stimulus was relatively "meh." More monetary policy won't change anything in an economy stuck in secular stagnation. But, Politburo's focus on fiscal policy was important, commented macro expert Marko Papic on X. “What is a "policy bottom?" It is when policymakers shift their focus from limiting risks of "moral hazard" to limiting risks of "political hazard." Every society finds this point eventually and pivots to fiscal”, he added.
Hedge fund manager David Tepper last week said in an interview with CNBC that central bank comments 'exceeded expectations'. Tepper talked mainly about stocks. He seemed quite impulsive talking about the topic - but see for yourself. What is David Tepper buying in China? "Everything," he says. "ETFs, I would do futures - everything. Everything."
"I thought that what the Fed did last week would lead to China easing, and I didn't know that they were going to bring out the big guns like they did," says investor David Tepper. "I think there's a whole shift."
Celebrity hedge fund managers going on TV and advocating investment opportunities always has to be taken with a grain of salt though. Just remember the glorious acting performance of Bill Ackmann’s “Hell is coming” appearance back in 2020.
Link: https://x.com/WinfieldSmart/status/1839289225566622202
Also keep in mind where the CNY/USD exchange rate currently is moving…
While the China story gets all the headlines, we think that the drought situation in Brazil was last week’s trigger for higher prices in soy as well as sugar and coffee. These dynamics are still overlooked by the mass media.
In Other News…
BRICS including its newest members will control almost half of global crude production. The UAE and Iran have already committed to BRICS membership, joining a coalition that includes Russia, China, India and Brazil. Saudi Arabia is still in the talking stages.
This week, look out for the following:
ISM Manufacturing PMI and JOLTS Job Openings on Tuesday
ISM Services PMI on Thursday
Job Market Report on Friday
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Till next Monday, Lukas
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