Commodity Trading & Trend Following

Premier Wen Jiabaoג€™s credit plan or Bail out has possibly started to kick in to the worlds third largest economy China. The prices of commodities such as copper and zinc are breaking out. The increasing demand for commodities and products from around the world should be an impetus for growth. Is this just a natural cycle or could Premier Wen Jiabaoג€™s 4 trillion yuan or $585 USD billion stimulus package be the savior of the global recession?

Albeit First-quarter GDP grew 6.1 percent, this was the slowest growth in almost a decade… but there was growth. However Chinese exports have continued to fall by the wayside. As the stimulus plan has started to produce results there is still industrial overcapacity, increased unemployment and weak private investment sentiment.

China needs their economy almost more than the United States to pick up. The fallout of exports has caused thousands of factories to close thus jobs of millions of workers have been lost.This can increase the risk of social unrest in China. China needs their planned 8 percent economic growth for the year to put millions of workers back to work.

Putting things into perspective China got its stimulus plan started months ahead of the United States. China has much more reserves than the US. More importantly it is interesting to compare the $585 Billion to the Trillions the US has tried and so far no effect. If China digs themselves out of their current recession does that mean the United States will as well. The old question decoupling or coupling. Chinaג€™s potential rebound contrasts with severe recessions felt around the world. The OECD (Organization for Economic Cooperation and Development) predicts 6.3 % growth for China this year ( versus their hope of 8%), compared with a 4 % contraction in the United States. and a 6.6 % decline in Japan.

Car companies in China are not threatening bankrupcy and building has started to pick up once again. Nissan Motor reported sales of passenger cars in China rose 36 percent in March from a year earlier.Dominoes can fall both ways.It seems that confidence is contagious and consumers are spending. Another example is Anhui Conch Cement Co,Chinaג€™s biggest maker of the building material. Anhui Conch Cement reported that sales volume jumped 15 percent in the first quarter from a year earlier. Another positive sign on the real estate front. Another example is the Chinese Stock market. Stocks has climbed 39 percent this year. This is a much larger % move than in the States. So far we are not anywhere close to hearing these great tidings out of the States.

Time will tell if the Chinese Bail out has worked and if they have turned the corner. It will be more interesting to see how this could effect the rest of the world.

What do you think.

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