A meeting of China’s top decision-making body flagged more help for commodities, but stopped short of unveiling any big-bang stimulus that would have given markets a sharp jolt.
(Bloomberg) — A meeting of China’s top decision-making body flagged more help for commodities, but stopped short of unveiling any big-bang stimulus that would have given markets a sharp jolt.
Providing more support for the beleaguered property sector and reducing the local-government debt burden were key messages from the meeting of the Communist Party’s Politburo on Monday, according to a readout from Xinhua. There was, however, no language indicating major fiscal or monetary loosening.
The property market accounts for around 40% of Chinese steel demand and is also important for consumption of metals like copper, aluminum and zinc. The market reaction was positive but relatively muted. Steel-making staple iron ore rose as much 2.2% in Singapore on Tuesday. Copper extended gains after closing up 0.8% on the London Metal Exchange on Monday.
The pro-growth shift in tone related to property and local government debt was the main takeaway, Macquarie Group Ltd. economists Larry Hu and Yuxiao Zhang said in a note.
The lack of a “bazooka-like stimulus package” wasn’t surprising, given the Politburo meeting isn’t typically the venue for announcements of specific measures, and authorities have made it clear they like to roll out policy in a piecemeal way, they said.
There will need to be more definitive and effective steps in the coming weeks before investors can gauge whether Chinese measures will be sufficient to push metals decisively higher.
The omission of President Xi Jinping’s slogan that “housing is for living, not for speculation” from the meeting is being taken as a sign that authorities are now focused on supporting the property market rather than preventing it from overheating.
There will also be hopes for more concrete follow-through on easing the debt burdens on local governments as that’s slowed spending, particularly on infrastructure, this year. Debt swaps and loan restructuring are being considered, Bloomberg has reported.
The Politburo meeting made it clear the leadership feels more work needs to be done to get the recovery on track, Julian Evans-Pritchard, head of China economics at Capital Economics, said in a note. The absence of any major announcements or policy specifics does suggest a lack of urgency or that officials are struggling to come up with suitable measures, which is “not particularly reassuring for the near-term outlook,” he said.
In metals markets, iron ore rose 1.9% to $114.75 a ton as of 4:29 p.m. in Singapore to trade near a three-month high. Copper climbed 1.1% to $8,613 a ton on the LME, while zinc advanced 1.8% and aluminum was up 1.1%.
The Politburo meeting “slightly exceeded market expectations,” said Wei Lai, an analyst at Zijin Tianfeng Futures Co. Although, investors are still waiting for detailed policies to follow, he said.
The Week’s Diary
Tuesday, July 25:
- S&P’s Beijing Commodity Market Insights Forum
- CATL earnings
Wednesday, July 26:
- Nothing major scheduled
Thursday, July 27:
- Chinese industrial profits for June
- International Conference on Power and Energy Technology, Tianjin, China, July 27-30
Friday, July 28:
- China weekly iron ore port stockpiles
- Shanghai exchange weekly commodities inventory, ~3:30pm local time
On the Wire
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