Pro Perspectives 2/5/20

February 5, 2020

As we discussed yesterday, the elaborate measures China took on Monday and Tuesday to shore up the economy and financial markets were a big deal, not just for Chinese markets but for global financial markets.

They articulated their response in a document titled, "Strengthen Confidence and Join Forces to Foster Effective Financial Support for Epidemic Control and the Real Economy." You can see it here. This document laid out the coordinated effort in China, under the direction of President Xi, and was explicit in their confidence and efforts to become the "put" for global markets. So far, mission accomplished.

If there's one thing we know from the events of the past decade (post-financial crisis), with $3 trillion in currency reserves, a pegged/artificially weak currency, and with global trade partners unwilling to poke the bear, they can print yuan and fund whatever they need or want to.

In early 2009, when commodities were crushed under the weight of a global credit freeze and demand destruction, China came in as the big buyer, "building strategic stockpiles" (as it was described in a Bloomberg article at the time). Commodities bounced sharply from the lows …

Despite a global economy that was still sucking wind for the years following the failure of Lehman Brothers, oil went from crashing to from $147 to under $30, to running back up to $100/barrell …

With the above in mind, as I said yesterday, I suspect they turn to the beaten-down commodities markets next and start stockpiling cheap commodities again.

Here is what that broad commodities chart looks like now …