Iron Ore

Traders are eyeing China’s stimulus announcement on Friday. Will it be substantial enough to counter weak growth and Trump’s looming 60% tariffs? The market reaction for USD/CNH, iron ore and copper hinges on the detail.

Iron ore, copper and silver, along with the Australian dollar, were among the markets hardest hit by China’s latest stimulus announcement, falling heavily as it became clear the objective of policymakers is to stablise growth, not see it accelerate meaningfully as seen in other state interventions of the past. The “bazooka” many headlines and bullish narratives were based upon ended up being yet another peashooter.

We’ve seen plenty of short squeezes before that have quickly run out off puff. But with speculation swirling that policymakers may follow up Tuesday’s monetary policy easing with fiscal stimulus ahead of Golden Week holidays, that alone may be enough to promote further gains in the days ahead.

Chinese regulators will slash interest rates, free up cash for banks to lend and implement measures to support the stock market, designed to help address flagging economic activity and inflation. However, none of the moves directly boost demand, raising questions about just how effective they may be in delivering a sustainable improvement in sentiment.

If you purely focus on the fundamentals of crude oil and iron ore, you’d be rightly feeling bearish. However, fundamentals and direction don’t always agree in these increasingly financialised markets, meaning you should arguably put just as much emphasis on price action to guide your investment decisions.

USD/CNH is pushing higher on Monday while China A50 futures are sliding, reversing moves seen on Friday. Now, as was the case then, fundamentals underpinning the moves continue to link back to China’s spluttering property sector.

Australian ASX 200 SPI futures are attempting to do something they’ve never done before: Successfully close the week above 8000 points. With extremely rich valuations in the local banking sector, it will likely require sentiment towards a soft landing for the global economy to be sustained, or a big bounce in iron ore futures, to make this attempt successful where so many others have failed.

Iron ore looks like a potential waterfall in the making on the weekly chart, closing in on support that may resemble a dam wall disintegrating if and should it give way.

Chinese markets are performing poorly despite policymakers cutting key policy interest rates last week. It’s been that way since the conclusion of the Third Plenum earlier this month, an event that delivered little in the way of concrete measures to help appease concerns about the trajectory for the economy.

AUD/USD has equaled its longest losing streak since August 2019, hammered by deteriorating sentiment towards the outlook for the Chinese economy and investor risk appetite, especially towards big tech. But with signs of stablisation in commodity and US stock futures, the grounds for a squeeze higher are growing.

Given significant uncertainty towards the demand outlook, it may be preferable to let the price action tell us what to do rather than pre-empt on fundamental grounds.