Residential and office buildings are seen in Beijing. Photo: Reuters, Jason Lee

Research from Goldman Sachs published Wednesday showed confidence in the Chinese economy, saying that tightening policies come from a position of strength, not weakness.

  • Commodities plummeted last week, with iron ore down 13%, crude down 6%, and copper down 3%
  • Other risk assets performed well with the S&P 500 up 1%
  • Commodity prices were hit by liquidation of spread positions in the oil market and LME inventory build in the copper market, but also the broad-based underperformance reflected China fears
  • PMIs coming out of China last week disappointed, fueling fears policy tightening was hitting the real economy
  • However, the policy tightening comes after unexpectedly positive China growth numbers for Q1
  • Tightening aimed at financial excesses and hidden leverages, not putting breaks on real economy
  • Curbs on housing market are still limited to top tier cities, with lower tier cities still seeing supportive policies
  • Market view on China has shifted from overly optimistic to overly pessimistic
  • Goldman Sachs maintains commodity overweight recommendation