Good morning from Copenhagen.

We’ve just received word from China’s Ministry of Finance that a briefing on fiscal policy is scheduled for Saturday. Many had expected the NDRC (National Development and Reform Commission) press conference to reveal a major stimulus package, but the lack of significant announcements left markets disappointed, leading to a sharp sell-off in Chinese assets during yesterday’s session.

The sell-off continues today in China-sensitive metals, with both steel and iron ore down around 2% this morning. Copper, in contrast, remains somewhat resilient, and we have started to see notable divergences between Chinese copper and iron ore stock levels, with iron ore stock continuing to remain above usual levels while copper stock is coming down rather fast. We know what happened last time copper stocks were abnormal, and we suspect that the reduction in copper stock will thus provide tailwinds for copper, while the opposite holds true for iron ore. The long copper/short iron ore spread trade is starting to look increasingly interesting—especially paired with the developments in China.

Chart 1.a: Significant Drop in Metals Prices This Morning