Think China, Think Commodities, Think U.S.
Posted by Larry Doyle on January 26, 2010 12:11 PM |
China led the overall market higher in 2009. With China now restricting credit, will it lead to a global selloff in 2010? How do we monitor this situation and most effectively navigate the economic landscape? We can keep a close eye on the Chinese stock indexes, but I think we are better served monitoring the commodities markets. Given that China is still in the very early stages of an industrial revolution, the demand for commodities within the People’s Republic of China is extraordinary.
Trading commodities is a very challenging game. From oil to grains to precious metals, the fundamentals and technicals are impacted by an array of factors. How does one forecast weather patterns three months out and the impact they will have on prices? Trading commodities is certainly not easy – and definitely not recommended as a hobby.
If China is curtailing lending (and it is), then I believe the market segment which will be most immediately impacted is the commodities space. While our equity markets are marking time today, how are commodities doing?
Let’s look at the DJ-UBS Commodity Index. We see that the index is not only down 1% on the day, but down 8% from the 52 week high achieved on January 6, 2010.
When I think China, I think commodities . . . and then I think our markets will fall in line accordingly.