Commodity Bull Run

Macro Perspectives: Fri 5 Feb 2021

Biden made his first prepared foreign policy speech yesterday afternoon..

Background: The Trump administration spent the better part of four years fighting China's ascent to global economic superpower - waging a trade war with China, ultimately getting concessions through a "Phase 1" deal, and by mid-summer, Pompeo explicitly declared the Chinese Communist Party "the greatest threat to everyone in the free world."

So, what did the new President have to say about China today in his first historic foreign policy speech? Almost nothing - and as is told by the new administration, China is an economic competition and Russian is the threat to democracy.

With that, the CCP should be confirmed as the big winner in the American election. China's leadership gets to go back to the business that got them so close (pre-Trump) to becoming the global economic superpower - ramping up the global supply chain and manipulating the currency to ensure they maintain global dominance in exporting.

But, while they have been in a position of strength economically, relative to the rest of the world, over the past 12-months, China has focused on importing. They've been stockpiling global commodities at dirt cheap prices, just as they did in the aftermath of the Global Financial Crisis.

China bought record volumes of crude oil, copper, iron ore and coal in 2020, they also imported a record amount of corn, wheat and soybeans.

So, that's record levels of industrial metals, energy and food.

Expect China to continue to take advantage of the opportunity to build inventory in commodities. With that, and with the "inflating global asset price” theme we've been discussing, these prices have a long way to go (up).