The Great China Market Con was on late last week as Asian markets and global commodity prices staged a trillion-dollar-plus rebound for no ostensible reason except a single screenshot of a page written in Chinese claiming to detail plans by the Government to unwind its strong Covid controls.
That this claimed secret document emerged unsourced at the same time as the number of Covid cases in China rose towards six-month highs on Friday and Saturday was not explained by anyone pushing the relaxation tale.
As a result, share markets rebounded in Asia, Hong Kong had its best week in a decade, oil jumped, copper touched the $US8,000 a tonne level in London and gold added more than 3% on Friday and iron ore surged more than 14%, with much of that happening on Friday.
Wall Street also had a big day out despite the stronger than expected jobs report for last month (See Separate report) and a small rise in the jobless rate to 3.7% from 3.5% which seems to have been the driver there.
The market action provided a grim irony for China – a month short of three years after the coronavirus was first detected in central China, daily cases hit a six-month high on Friday.
There’s a lot riding on this latest sleight of market which has become all too common in the past decade.
Every now and then a breathless report claims China is going to spend up big on stimulus, change rules, relax Covid lockdowns, ease its strident attacks on the West – usually it’s via a ’secret document/report/meeting/comments made by a senior official in President Xi Jinping’s government.
And every time it ends up wrong or is overtaken by a crisis elsewhere, poor data from the US, a rate rise or often just fades away.
This time around the first signs of a ’new story’ were low level reports of possible changes to the tough Covid rules that saw China’s economic activity go backwards in October for the third time this year.
Then those claims were then apparently backed up and expanded by an anonymous single screenshot detailing China’s plan to reopen which suddenly popped up on Chinese domestic social media.
The screenshot claimed that a government meeting held by a top leader of the Communist Party discussed plans to scale back most Covid control measures by March 2023.
According to media reports the screenshot claimed China would be “speeding up a conditional opening plan, with the goal of substantially opening by March next year” in the meeting with Wang Huning, who has been described as the nation’s fourth most powerful man.
The image was shared to WeiChat before making its way to Twitter and other social media platforms, generating a wave of interest from investors inside China and abroad.
The government denied there was any change coming but none of the eager beaver urgers wanted to listen.
Hong Kong’s stock exchange jumped more than 5% on Friday, to be up nearly 9% in a week (it’s still down 30% so far this year) in the wake of the appearance of the screenshot and other ‘reports’.
The Shanghai market was up more than 2% Friday and the CSI 300 which includes the top shares from Shanghai and Shenzhen exchanges, jumped more than 3% on Friday which took the week’s gain to 7.50%.
Comex gold surged more than $US54 an ounce, or 3.36% to end around $US1,686 an ounce.
Copper on the London Metal Exchange had its best day in more than 13 years as the price jumped over 7% after reaching above 4US8,000 a tonne. LME zinc jumped 5.7% and aluminium was up 4%.
In New York, the surge in gold spilled over into silver which jumped more than 7% to $US20.915, the highest for more than six weeks.
Comex copper followed London higher, leaping 8% on the day to $US3.70 a pound.
In energy, US West Texas Crude jumped more than 5% to $US92.60 (higher petrol prices coming Australia!) and Brent crude surged more than 4% to settle at $US98.57 a barrel.
US rig use rose by three last week, according to Baker Hughes, to 613. A year earlier, the US had 450 oil rigs in operation.
Oil and gas rigs in the US rose by two to 770. Gas rigs dropped by one to 155, while miscellaneous rigs remained unchanged at two, the company’s data showed.
In the same period of 2021, there were 100 gas and zero miscellaneous rigs in operation. Overall, there were 550 rigs operating a year ago.
Thermal coal prices continued to ease – dipping around $US1 to $US1.50 a tonne to under $US350 a tonne for the December contract, but the losses earlier in the week slowed on Friday
October 2023 coal fell under $US300 a tonne for the first time in months and LNG prices in north Asian reversed its recent weakness and rose back above $US28 a million British thermal units.
The turnaround in iron ore prices was perhaps the most dramatic. After dipping to a recent low of $US77.17 a tonne on Monday (a three year plus low), the price started recovering and as the stories about the looming ‘re-opening gathered pace, the SGX futures price kicked higher.
But Friday it had ended at $US86.35 a tonne. SGX Australian hard coking coal futures also bounced on Friday back to $US321 a tonne, just $US1 a tonne short of where it was a week earlier and above the lows on Thursday of $US313 a tonne.
So what happens today and over the rest of the week? Will Friday’s surge continue? Markets are certainly searching for a reason to have a great big end of year rebound, as they did in 2020 and 2021. This might be it.
