Finimize - 🇨🇳 Forget China's rebound

China's industrial sector damped the mood | Copper could create the next price crunch |
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Today's big stories

  1. China's rebound reversed in March, when the world left the country’s hard work to gather dust
  2. This trade is giving profit to hedge funds, and headaches to regulators – Read Now
  3. Copper miners need to spend billions to address the metal’s future supply gap

Mind Games

Mind Games

What’s going on here?

China’s industrial sector let the country down in March, a cruel twist after seven months spent inspiring hope in worn-down, nerve-wracked economists.

What does this mean?

Chinese industrial companies brought in 3.5% less profit in March than the same time last year, pouring cold water over a seven-month streak of increases. That, at the same time as orders for exports unexpectedly slipped, leaving manufacturers with little to keep them busy. The decline caught even experts off-guard: profit had ticked up by 10% over January and February to reach a 25-month high, sparking hopes that the industrial sector might be shaking off its slump. Clearly, it’s not going to be that straightforward.

Why should I care?

Zooming out: Home and away.

Officials in the US and Europe are wary of China’s reliance on its manufacturing muscle. See, China’s all-important factories are churning out more stuff than they can sell, so they’ve been pushing harder into overseas markets, often handing over goods for less than it cost to make them – a process called “dumping”. Problem is, Western countries are calling out the country for overproducing, as they can’t compete with those impossibly cheap prices. And with talk that China’s electric vehicle and shipbuilding businesses may come under watch too, Chinese officials might need to pay special attention to the problems at home.

The bigger picture: Investors love a bargain.

That doesn’t mean the writing’s on the wall for Chinese stocks, mind you. Investors are expecting the Federal Reserve (the Fed) to push interest rate cuts further down the line now that stateside inflation seems to be picking up again. And because higher-for-longer rates tend to weigh on stocks, investors might switch their focus away from the US market. Their gaze may just land on China’s stocks, instead: not only are they trading at near-record discounts compared to their US counterparts, but they’re also less affected by the Fed’s monetary decisions.

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Analyst Take

The Little-Known Hedge Fund Trade That’s Got Regulators Feeling Nervous

The Little-Known Hedge Fund Trade That’s Got Regulators Feeling Nervous
Photo of Stéphane Revenier, CFA

Stéphane Revenier, CFA, Analyst

A lot of leading hedge funds are fans of the US Treasury basis trade.

And it’s easy to see why: this savvy, uncomplicated strategy allows them to snag some seemingly straightforward returns.

But don’t let the simplicity fool you: all the major financial watchdogs are waving red flags about its potential risks.

That’s today’s Insight: the hedge-fund trade that’s got the financial stability pros on edge.

Read or listen to the Insight here

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Canary In The Copper Mine

Canary In The Copper Mine

What’s going on here?

A new study predicted that the copper market will be short of supply in the coming years – unless miners throw billions into new production.

What does this mean?

Copper is used in renewable energy plants, power cables, EVs, and data centers – all of which are more in demand than ever thanks to megatrends like decarbonization and AI. Problem is, existing mines are set to produce less copper in the coming years as mines run dry, and firms aren’t investing enough into new sites to make up the difference – let alone increase output. Instead, they seem more interested in buying copper-focused rivals, as demonstrated by BHP’s proposed takeover of Anglo American. In fact, according to consultancy CRU Group, miners need to spend an extra $150 billion between 2025 and 2032 to make up the suspected supply gap.

Why should I care?

The bigger picture: Once bitten, twice shy.

Miners have their reasons for cutting back. It’s getting harder to find new high-quality sources of the metal and mining costs are picking up – all while there’s a mounting social and environmental pushback against mining. Plus, copper is a bellwether of the economy, with demand rising and falling depending on the state of the world’s industries. That makes miners extra cautious, in case they get caught out by a sudden drop-off in demand just as they finish their projects.

For markets: We need red to turn green.

Copper mines take years to develop, so miners need to be convinced that future copper prices will justify the costs of scaling up. Currently, BlackRock reckons that the metal’s price needs to reach a record-high of $12,000 a ton – about 20% higher than today’s levels – to incentivize serious spending. And there’s a lot riding on that: if miners don’t churn out more copper, prices could spiral out of control, posing a risk for the technologies that are touted as potential world-savers.

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💬 Quote of the day

"Nature does not hurry, yet everything is accomplished."

– Lao Tzu (an ancient Chinese Taoist philosopher)
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📈 The UK is back, baby

The UK’s FTSE 100 has been the worst-performing index across Europe this year.

Well, until this month.

Higher oil prices and a weaker pound have picked the index off the floor and pushed it to a record high this week: let's see if that will last.

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