Can China Stimmy Tame The Mighty Dragon? Part 1 of 2

Thoughts That Make You Go Hmm...this is my personal view for the first half of 2024 and I could be very wrong.

The LME base metals prices have been under renewed selling pressure since trading began in 2024. There has been a sense of hopelessness; a post-holiday slumber that has weighed on overall market sentiment, no doubt carrying with it the burden of headwinds from 2023.

The market outlook has also turned murkier amid growing geopolitical concerns in the Middle East. Red Sea, freight rates, supply chain, missiles and many other relatable things. Meanwhile, Taiwan presidential election did not go China's way but it is unlikely that there will be any intensified military action in the region in the run-up to the Lunar New Year holidays.

Lunar New Year falls on February 10, and this year we welcome the Wood Dragon. It is widely known that year of the Dragon bring opportunities, changes, and challenges. With this in mind, I am taking this opportunity to wish all my readers a Happy Chinese New Year in advance :-)

If 2023 seems rough, 2024 is likely bumpier, with elections in key developed economies that is set to increase market volatility, a slightly disturbed US Federal Reserve which remains data dependent and happy to turn hawkish/dovish (recently toned down rate cuts is the perfect example to quell market expectations) and the uncertainty over the ongoing wars. But perhaps the more important player in this game that many appear to have discounted may very well offer the biggest surprise - China with all the stimulus bazooka out.

We recall this time last year when everyone in China had cheered after President Xi Jinping declared an end to Covid lockdowns and there was palpable excitement over what the year could bring. Base metals prices had initially run higher on the news before the rally quickly ran out of steam (think of January and February 2023).

But back then, Chinese citizens had been as surprised as the rest of the world that lockdowns were being lifted. They had not made plans to go home (not in the hordes like pre-covid), travel long distances or spend money on goods or services, which are strong drivers of the Chinese economy. This is perhaps what caused the brief rally in LME base metals prices to fizzle out by February of 2023. Of course, there were other reasons for the sell-off in LME base metals to resume which we will not delve into here.

The point that I am trying to address here is; what if this time it is different and Chinese citizens are far more confident in enjoying their Lunar New Year breaks in the usual, pre-Covid way? What if we are about to witness the resurgence that many had expected in 2023? What if the data released after the holiday brings the positive changes that many had expected? What if that becomes the trigger for another bear market rally for the LME base metals? After-all, the year of the Dragon is one of surprises – good or bad, but after the doom and gloom of 2023, the latter would certainly be the better option for many in the market.

Maybe this is the relief rally for H1 2024, maybe China has had enough of lukewarm recovery, just maybe this is only a brief rally and the latter half of this year take on a different scenarios...but one thing for sure, lets not underestimate China like it was 2023. I standby the view that China could look a lot better than its counterparts in 2024 but again a lot of this depends on the upcoming data.

The views shared above is purely my train of thoughts and may or may not be relevant. I will revisit this topic after June and might come up with the second set of thoughts.