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