The news of a slowing Chinese economy may spur Beijing into action, and that’s great news for commodities such as copper.
While a growth rate of 6.2 percent would be the envy of most in the world, it may be enough for China to institute another round of stimulus — albeit not on the scale of previous efforts.
The Wall Street Journal has reported that the growth rate, which was higher than expected but lower than previous quarterly figures of 6.4 percent, meant the government may look at giving the economy a kick-start.
With analysts pointing to the ongoing trade war rumblings with the US as having an effect on the Chinese economy already, Beijing will be keen to show that it can spur growth so it isn’t negotiating from a weakened position.
The WSJ said while Beijing won’t resort to flooding the economy with credit (à la the last stimulus round), it will still be looking at ways to spur activity, such as lowering interest rates and easing restrictions on local governments.
That would be great news for a commodity such as copper, which has been held down by the ongoing uncertainty around the China and US trade war.
While the micro story looks good for copper (supply shortages), the macro is what’s been troubling it.
Copper is largely used as wiring in new buildings, and as such is seen as a barometer of construction activity (although it has plenty of other uses).
Should the Chinese government move to stimulate the economy through construction, it could very well remove one of the overhangs on copper which has seen it languish at current levels.
This content does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
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