Thursday, November 04, 2010

It's not QE2...

It's China.  As we see today, the Fed announcement of a second (and bigger) quantitative easing is perking up commodity markets.  Economist had expected it, except that may not be what is really happening.

So which kind of rise are we observing? James Hamilton credits QE2 with lifting commodity prices and posts charts tracking price rises across a range of commodities:
But what's interesting about his charts is that the steady upward trend common to all of them starts around the beginning of July—not the beginning of September, as we'd expect if QE2 were the causal factor. What happened around the first of July? Well, China's government, which had grown concerned about the too-rapid slowdown in its economy, paused or reversed some of the steps it had taken to dampen activity. This included restrictions on bank lending and a temporary halt to appreciation of the yuan. And what followed, we now know, was a remarkable resumption in Chinese industrial activity. To me, the steady climb in commodity prices over the past four months seems indicative of the surprisingly strong performance of emerging economies.
That doesn't mean that Fed activity has had or will have no effect. I'd be surprised if commodity prices didn't go on rising. But much of that rise will be an unavoidable knock-on effect from the collision of soaring global demand for commodities with lagging global supply. [More]
If you have entertained any doubts about the leading global economy right now, this might shift your gaze from Washington much further east. Despite our overwhelming lead in actual GDP size, it is the growth rate differential that will make China the mover and shaker.

Add in what will surely be a push for austerity measures which could well stop our feeble recovery in its tracks, and we'll be checking the overnights more assiduously than the noon prices.


Anonymous said...

protectionism,,you guys would call it national security or will it have a new name if China aggressively starts buying massive amounts of US land too grow crops too export back home,,,FWIW I believe majority of shareholders in Potash corp. are americans....when US starts too import all there ethanol from Brazil then it will be time for Canada too give up control of Potash...but what do i know after falling off that turnip truck..regards -kevin

Anonymous said...

Sorry above post should have been under potash blog--my regrets-kevin

John Phipps said...


I'll respond here in kind.

Protectionist measures are always reasonable sounding because they essentially put the interests of "us" against the interests of "them". But Canada is not a large consumer nation and every time it takes such measures it encourages rude shocks from its trading partners.

If the majority of the stockholders are Americans, why would changing that to Australians be such a change.

This move is more about cartel pricing (like OPEC) and the SK budget than national interests, IMHO. But I suggest it will likely be replicated in other sectors around the globe to the economic loss of us all.