Chinese wall of stimulus

Do you believe in China story? Do you think Chinese economic stimulus will speed up the recovery? If your answer is yes, sure you want to have some exposure to China. How do you gain it? By investing in metals and mining sector. Given the fact that China is the largest consumer of commodities and if the dragon has awakened from the slumbers, above argument makes a good sense.

The dollar index held above 105. No prizes for guessing why? Robust US economic data bolstered the hopes of a soft landing with higher interest for longer. The yield on the 10-year US Treasury note is heading to 15 years high of 4.34%. Brent crude rose above $94 per barrel amid an improving global demand outlook, thanks to China, and tightening supplies.

China’s physical gold premiums soared to a new high of $50 an ounce. It means there is a strong demand for the shining metal. Why such a demand? Well, it is deliberate attempt to shore up a depreciating yuan. Of course, no new import quotas is another reason. Meanwhile in India, the discounts are widening much to $8 an ounce or so. Gold rose above $1,915 an ounce. Base metals complex was generally weak. Both copper and ali lost $40 a tonne i.e. half a percent and 2% respectively.

Yesterday’s PBoC’s move is an indication of China’s commitment to support the economy, but market response remains muted. The positive news out of China is supporting positive momentum on the day of the release, each incremental impact on base metals is diminishing. Why? I guess a deterioration of market confidence. What do you think?