Is It Slowing China Or Grexit That Is Driving Financial Market Price Changes? by Bryce Coward, Gavekal Capital
While some of the post Greferendum moves in financial markets could have been and were predicted by the financial punditry – lower euro, lower stocks, lower US bond yields, higher gold – the real moves have appeared elsewhere. Indeed, as of this writing the euro is only lower against the USD by less than .5%, the MSCI World Index is barely off by 1%, bonds are bid, but not emphatically, and gold is only marginally higher. The real moves have been in oil (WTI down 6.3% and Brent down 5%) and copper (down 3.9%). While at first glance this may strike one as odd, there could be something larger at work. Perhaps the more important catalyst for asset price changes of late is Chinese economic slowing rather than fears of Grexit? As the charts below show, Chinese industrial output is closely related to oil and copper prices. Or said differently, oil and copper prices are closely related to Chinese economic activity and the slowing of which is having a direct impact on these growth sensitive commodities.