China Stimulus Package: Bearish for Yen, Bullish for Basic Materials

China’s State Council based in Beijing announced a $586Bn ($4Tn Yuan) stimulus package that will be directed towards low-income housing, roads, railways, airports and infrastructure in rural areas from now until the end of 2010. This stimulus package, which represents almost a 1/5 of China’s GDP, along with recent interest rate reductions, should at least help offset some of the anticipated economic slowdown over the short-term.

One of the main reasons steel and building materials stocks have sold off is due to concerns of slowing demand from one of the world’s fastest growing economies, i.e. China. This capital investment alters the landscape of the global credit crisis for industries correlated to infrastructure development. Related securities which may benefit from this news event and implementation of China’s stimulus plan are the Market Vectors Steel ETF (SLX), DB Base Metals ETF (DBB), United States Oil Fund (USO), and Spyder Select Sector Basic Materials ETF (XLB).

Keep a watchful eye on them and the market’s supply/demand pressures dictated by traders.

The stimulus package could be bearish for the Japanese Yen and potentially reignite the carry trade. In lieu of this, Hillbent is modifying its position on the Rydex Currency Shares Japanese Yen Trust ETF (FXY) to neutral.

The capital markets are dynamic and require flexibility to survive. Should the FXY violate support levels of 101.35 and/or 100.56, long positions should be closed to minimize losses and preserve capital.

Disclosure: None

Comments

[Pipo:]

Read Jim Rogers`s Oil Outlook at,

oiltradersblog.blogspo...

Oil is probably the commodity that may benefit the most from this chinese stimulus package. Aluminum and Copper are going to rebound too.

2008 Nov 10 06:35 AM