If you’ve been following the Chinese economy through 2024, you’d know the country has been unveiling stimulus announcements and policies all year.
Coming in at around once-monthly, the market has consistently shrugged as the Red Dragon continues to remain near deflationary territory with consumer sentiment depressed following the world’s most intense lockdowns during COVID and widespread riots as a consequence in early 2023.
But now – and the key here, in my view, is that we’re in a post-Fed-cut-world – the latest Chineses stimulus announcement has been taken very differently.
What did China announce?
China announced a stimulus push on Tuesday this week when it effectively cut interest rates, announced the Chinese central bank would give funds to brokers to buy Chinese stocks, and, vowed to ease mortgage requirements (again.)
China has moved to ease mortgage requirements and/or cut interest rates multiple times this year – in February, then May, and then July. Markets shrugged.
This time, however – unlike every other stimulus announcement from China this year – it’s led to a revival of optimism in commodities markets.
It doesn’t require a doctorate to figure out why this time is different.
In an environment where the US Fed has caught up with Europe, Canada, and other nations –Jerome Powell officiated the country’s first -50bps rate cut just last week – metals traders are in a better mood.
What are commodities doing?
With that Fed afterglow powering bullish sentiment, it currently feels like it’s the first half of 2024 all over again.
Let’s take a look at how major hard rock commodities are faring. As of 11.15am Sydney time on Friday 27 Sept:
- Iron Ore up 9.8% WoW to US$100.70/tn (SGX)
- Copper up +7% WoW to US$4.58/lb
- Gold up +1.9% WoW to US$2,670/oz
- Silver up +2.2% WoW to US$31.85/oz
- Lead up +4% WoW to US$2,139/tn
- Aluminium up +5.7% WoW to US$2,627/tn
- Zinc up +7.6% WoW to US$3,094/tn
- Nickel up +2.9% WoW to US$16,806/tn
Commodities back on the table
For Australian audiences, most important to recognise is that iron ore futures in Singapore are now back just over US$100/tn in Singapore; the benchmark most relevant for the big Australian ore miners.
That could raise eyebrows.
In late August, China’s state-owned metallurgical newspaper – such a thing exists – described price climbs in iron ore to $100/tn as “irrational.”
That same week (Week 35 of 2024,) small Australian iron ore player CuFe Ltd pulled out of its iron ore digs. Worth noting is that “CuFe” is a combination of the elemental names for copper, and, iron.
Whether that’s cause for concern remains to be seen. It’s definitely true that the world has been waiting for a Chinese revival; this could finally be it.
And it’s been a ripper week for Australia’s big ore miners, even hurting bank stocks, as investors reposition into the miners and away from the Big 4 finance giants.
Of course, then there’s the fact Brent Crude prices – which jumped to US$75/bbl earlier this week – have dipped back down to US$71/bbl, partially in response to concerns that China’s Tuesday stimulus news might be overhyped.
Time will tell.
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