And so, our wild ride goes on. Have we bottomed and entered a restock? Quite possible. There is one reason above all else for why. The stimulus calls are growing. From the FT:
A gloomy outlook for key Chinese economic data to be announced on Thursday is prompting analysts to predict that Beijing may take steps to stimulate the economy to prevent GDP growth from falling too far below its target of “about 7.5 per cent” this year.
The shifting perceptions follow a downbeat forecast from the State Information Centre, a government think tank, which projected GDP growth in the first quarter of this year may come in at “nearly 7.5 per cent”, down from 7.7 per cent in the whole of 2013. It also said fixed asset investment – a key indicator of Chinese demand for metal ores, steel, cement and other inputs – would grow at 18.6 per cent in the quarter, down 2.3 per cent year on year.
Stephen Green, head of Greater China research at Standard Chartered, said that a sharp easing in interbank interest rates in recent days may be an early indication that Beijing is preparing a more supportive economic policy. Further actions could include a cut in bank required reserve ratios – which would release more liquidity into the economy – and an invigoration of investment projects under the current five year plan, Green added.
The one-week Shanghai Interbank Offered Rate (Shibor) declined 4.7 basis points on Wednesday to 2.11 per cent, extending its recent sharp decline.
Jianguang Shen, Greater China chief economist at Mizuho Securities, said that the recent depreciation of the renminbi against the US dollar and the decline in interbank rates signified that “monetary policy has started to ease already”. He added that “we continue to expect more substantial fiscal spending to be announced in order to raise investment and stabilise growth. Depending on the date when the stimulus measures are launched, we expect GDP growth to drop below 7.5 per cent in 1Q and perhaps go even lower in 2Q.”
Craig Botham, emerging markets strategist at Schroders, said he thought Beijing may try to stimulate growth through non-credit means, perhaps cutting taxes to boost consumer spending and reduce the burden on corporations struggling to service huge debts.
I don’t think that there’s enough pain yet for fiscal stimulus. The monetary easing is obvious but we still don’t know if that is because of the PBOC or bank liquidity hoarding.
But that is neither here nor there. If mills get it in their heads that stimulus is imminent then they will restock and up we’ll go. If not they have every incentive to keep the pressure on the ponzi bastards that built the port pile, in the process grabbing their ore cheap and forcing them out of business, decreasing competition and raising steel prices.
At this stage I would describe what’s going on as stabilisation and snap-back. It could run for a while but unless economic prospects firm, the mills will have no incentive to enter a fair dinkum restock and the pulse will fade.
Today’s economic data will be important but even more so will be credit indicators for March. January and February credit is virtually flat year on year, March was huge in 2013 and if it isn’t matched then growth is going to keep slowing and steel output won’t grow either. There’s no reason growth can’t fall below 7% for a quarter or two before rebounding if authorities wish to shake things up some more.
That’s what I’d do.
