China’s Economy Is Rebounding Fast! What Does That Mean For Commodity Prices?

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Published: Mar 3, 2023, 14:52 UTC

The Chinese economy is rebounding again, much faster and stronger than most expected.

Chinese Economic Activity Is a Massive Game Changer

While there is no denying that a revival of the world’s second largest economy and its biggest consumer of Commodities is set to provide a welcome boost to global growth – offsetting weakness in Europe and the United States. However, unlike in 2009, when China’s four-trillion-yuan stimulus helped kick-start a recovery from the Lehman’s collapse – in 2023 there’s a catch.

And that’s a boost to inflation at exactly the moment the Federal Reserve and its global central-banking peers race to tame the biggest price spikes seen in four decades.

Data released this week, showed China’s manufacturing activity expanded at the fastest pace in more than a decade in February. China’s manufacturing PMI smashed records – surging to 52.6 from 50.1 in January – the highest reading since April 2012. A reading above 50 indicates expansion, while a reading below 50 reflects contraction.

Elsewhere, the official National Bureau of Statistics Non-Manufacturing PMI – a measure of economic activity in the service sector – soared to 56.3 in February from 54.4 a month earlier. That’s the second consecutive increase, since China reopened its economy and the highest reading since March 2021.

As savvy traders very well know – an increase in Chinese economic activity is a massive game changer – as renewed demand for every possible Commodity imaginable from the metals, energies to agriculture – could inevitably led to another global supply-side shock.

Impact On Commodities

The markets immediately reacted to the bullish Chinese data with a long-list of Commodities from Aluminium, Copper, Palladium, Platinum, Gold, Silver, Zinc, Crude Oil to Natural Gas prices skyrocketing to multi-month highs – with many notching up spectacular double digit gains.

Since the beginning of this year, a growing chorus of leading Wall Street banks from Goldman Sachs, JPMorgan to Bank of America have repeatedly signalled that “China’s Come Back and Re-Accelerating Inflation” will be two of the biggest macro themes driving the markets in 2023 and paving a path for Commodity prices to outperform every other asset class out there for a third consecutive year running!