Well that de-escalated quickly…
Chinese steel futures were on course for their biggest weekly fall since 2009 on Friday, as a selloff in the country's commodities showed signs of spreading to other global markets for raw materials such as palm oil and base metals.
Weakening fundamentals along with strong measures by Chinese exchanges to stamp out speculative activity have helped reverse momentum in China's massive commodity futures markets from bullish to bearish in less than a month.
The deepening losses have started to weigh on global markets elsewhere, in a similar manner to the boom and bust cycle in the country's stock markets last year.
This is what government-intervention-driven malinvestment-creating unintended consequences look like…
and just consider what signals the rally sent to the world?
Rising levels of open interest, or open contracts, in China's steel and iron ore futures, as prices fall deeper suggest investors are looking at more downside risk.
The sentiment is very bearish now, and investors are looking for opportunities to take more short positions," said Wu Wei, an analyst at Yong'an Futures in China's Hangzhou city.
The softer outlook for the Chinese economy, rising steel production and waning seasonal demand have fueled the sharp losses in steel-linked futures, said Wu.
"We are now kind of at or past the peak in seasonal demand so prices are coming down. And maybe since we overshot on the upside so we can undershoot on the downside," said Ian Roper, commodity strategist at Macquarie.
And with "authoritative persons" now saying no more stimulus, things do not look good for the "china is recovering" narrative…
As we conclude previously, In general, the "anonymous authory"’s main thesis is that China needs to put structural reform on top of investment driven stimulus and control the risk from high leverage.
Say good bye to the aggressive easing in Q1 and China will enter couple quarters’ “reform” period, until the government cannot stand with the pain and has to use “investment driven stimulus” again.
via http://ift.tt/224nJ0C Tyler Durden