IS CHINA FORECASTING A DECLINE IN COMMODITY PRICES?

Great note this morning from the always informative David Rosenberg.  Mr. Rosenberg notes something that we have highlighted in the past – China as a leading indicator. In this case, Mr. Rosenberg highlights China’s high leading correlation with commodities.  Is China forecasting a decline in commodity prices?  Rosenberg elaborates:

“To very little fanfare, the Chinese stock market — the first index to turn around in late 2008 — has slipped into a bear market.  It is down 15 % from the nearby high and 20% from last year’s interim peak.  Why this is important is because the Shanghai index leads the CRB commodity spot price index by four months with a 72% correlation (and over an 80% correlation with the oil price).  Don’t get us wrong — we are long-term secular commodity bulls; however, we have been agnostic this year from a tactical standpoint — never hurts to take profits after a double!”

Source: Gluskin Sheff

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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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