adminAs the end of China’s stringent Covid-19 restrictions quickens the country’s economic recovery, concerns about pent-up Chinese demand — and the inflation that may follow — could mean bad news for the US Federal Reserve.
Economic data indicates that the Fed’s aggressive rate hikes are pulling down US inflation, but China’s demand could make commodity prices return to levels from early 2022, before the US central bank embarked on its journey of hiking rates to bring down inflationary pressures.
“In our view . . . a stronger China increases the chances of a stubbornly hawkish Fed,” Tavis McCourt, institutional equity strategist at Raymond James, said in his 2023 Outlook.
“With China, we do need more of everything — if that drives enough demand to get commodity prices back up closer to where they were in the spring of last year, then that puts the progress we’ve seen on inflation in a much more tenuous position,” he said.
With activity expected to pick up from China, demand for a variety of commodities will be driven up, McCourt said.
“As consumers are allowed out of their apartments, and start becoming more mobile, there’s going to be more gasoline demand and more jet fuel demand,” he said. “Demand is going to come back really quickly.”
Commodity prices have indeed seen significant gains since December, when China announced plans to lift some of its strictest Covid-19 measures.
Three-month copper futures on the London Metal Exchange traded at US$9,436 on Yesterday morning — up around 12,5 percent month-to-date. Aluminum prices also rose 11,7 percent in January, FactSet Data showed. — CNBC.
Online Reporter