Weekly Market Recap
Week in review
- Australian retail sales 1.4% m/m
- RBA policy minutes hold the lower for longer line
- Eurozone PMI Composite slightly improved to 53.7
- Australia CPI inflation 1Q
- Eurozone and U.S. first quarter GDP
- U.S. Federal Reserve policy meeting
Thought of the week
Investors looking to hedge the upside risk from inflation may turn towards commodities and the historically inverse relationship to the rate of inflation. However, the strength in some commodity prices is being questioned, especially as China starts to ease back on the supply of credit to the recovering economy. The credit impulse is the amount of credit being pumped into an economy as a share of GDP. In the case of China there is a pretty strong relationship between this pulse and the price of industrial metals (see chart). The logic being that Chinese stimulus funds infrastructure projects that require steel (and therefore iron ore) and copper creating demand and driving prices higher. The credit impulse in China has potentially peaked and if this proves to be a reliable lead indicator of metal prices, suggests that metal prices may face a headwind. The offsetting factor is how demand will be created as the global economy outside of China recovers.
A peaking in China’s credit impulse
China credit impulse and industrial metal prices
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