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

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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  • AWF

    It is no secret that China is/was buying Copper/Metals and Oil

    No offense to Rosey–but the obvious is obvious.

    I’m sad today—there is no more “Kabuki” theater on bloomberg.

    Do you want the likes of Levin regulating Wall Street?

    Levin: I’m stunned– there is gambling going on in the Casino.

    Take these public serpents—Please

  • LZ

    Hardcore Deflationists must be stunned for what have happened. Actually they are right for everything but one: If there is political will, government can create inflation in no time. A bad news for deflationist: China is packaging 2nd stimulus, local government are pouring MUCH MORE money into fix income investment which is already in bubble territory. With local government liability already 30% of GDP, instead of much expected Yuan appreciation, Yuan hyperinflation death sprial starts right here right now.

  • http://NewWorldInvestor.com Michael Murphy

    Looking at the chart doesn’t show nearly those declines. I don’t know what their index is, but the Shanghai Composite closed today at 2,900. That’s down 7.3% from the near-term high of 3,130 and down 17% from the August 2009 peak. Maybe it will give a bear market signal – but not yet.

  • Leo Olson

    Your “advanced” on chart is open to ambiguity (advanced as charted to earlier or advanced in time to later?). Also should the four months show as occurring earlier as in time, or occurring simultaneously as chart was modified to? Without such assurance, the correlation is not consistent enough to convince. Also added syntactical clarifying could make the situation immediately understandable. An author’s time saving is not the sole standard for pragmatism.

  • Simon

    It would be interesting to see how Mr Rosenberg explain the correlation prior to 2006 when the Shanghai index was in a bear market since 2001 while the CRB index was in a bull market.

  • Anonymous

    The iron producers are up at least 60% with rates so with every country I can think of going to infrastructure projects to boost the economy I think Vale and BMP are going to be fine for at least 6 months.
    Tom P