When China removed youth unemployment figures from its report, it was a red flag for investors. The country is navigating through a recession and deflation. Recent attempts to stimulate the economy will bode well for igniting a commodity super cycle.
China’s yuan backed down from multi-decade lows. This helped copper prices listed on the London Metal Exchange to strengthen.
On Sept. 14, China cut its reserve requirement ratio – RRR – for the second time this year. The RRR for all banks is 5%, down 25 bps. The central bank wants to stimulate the sluggish demand that followed after the three-year-long Covid lockdown.
China entered serious economic problems after the lockdown that ended in Nov. 2022. The real estate market is very weak. Prices are falling by around 50%, although official figures will report a small drop. Since the Chinese people have most of their savings in real estate, the price drop hurts demand.
Expect the country to continue cutting rates. This will cause an increase in the demand for raw materials. Cement, copper, iron ore, and oil and gas are the commodities that benefit the most. Look at stocks like BHP, Rio Tinto (RIO), Vale (VALE), and Freeport-McMoran (FCX).
