Will China’s ‘Two Sessions’ add further momentum to China’s bounce back?
Following a February lull in the expectations for a post-Covid economic rebound in China, that focus returned to the fore after the February Manufacturing Purchasing Managers Index (PMI) surged to its highest level since 2012. Another report showed China’s home sales rising for the first time in 20 months, after policy makers stepped up their support for a struggling sector. The strength of the current economic recovery has, according to a report, surprised China’s leaders, suggesting the government will be restrained in rolling out new stimulus measures this year.
With that in mind, the focus now turns to the Chinese government and what they will do to further support an economic recovery. The first session of the 14th National Committee of the Chinese People's Political Consultative Conference (CPPCC) will begin on March 4, followed by the 14th National People’s Congress (NPC) the next day. During what is collectively known as the “Two Sessions”, Chinese officials will release a set of social and economic development goals as well as their official growth forecast and various policy measures to achieve them.
Commodities recover following a challenging February
The commodity sector spent most of February on the backfoot with losses seen across key commodities, from energy to industrials and precious metals. These losses were primarily driven by continued strength in US economic numbers, including inflation, forcing the Fed to turn up the hawkish rhetoric while at the same time sending bond yields and the dollar higher—thereby hurting risk sentiment across the stock and commodity markets. However, while some of these worries have been offset by the mentioned strength in Chinese data, the short-term outlook remains balanced with no clear driver yet emerging to significantly change the stalemate between bulls and bears. This is most visible in the energy market, where crude oil has traded rangebound since late November.
The Bloomberg Commodity index—which tracks a basket of 24 major commodity futures spread almost evenly across energy, metals and agriculture—trades down 4.2% on the year after a 4.7% decline last month wiped out January’s gains, especially among precious and industrial metals. Gains have primarily been concentrated among the soft commodities of coffee, sugar and cotton, all of which are supported by a tightening supply outlook. The energy sector scrapes the bottom, primarily because of losses in an oversupplied US natural gas market. As in Europe, the price of US natural gas slumped last month as the mild winter reduced demand for heating, before suddenly posting a near 30% gain this past week on signs production may begin to suffer from falling prices and a pickup in LNG exports to a one-year high.