China gets a rise out of markets, where U.S. failed

Wall Street has seemed wholly unimpressed with U.S. economic stimulus plans. But the idea of China spending more money lit up markets today.

Investors, or at least traders, snapped up commodities and stocks worldwide on expectations that China will announce new steps to reenergize its economy.

Crude oil futures jumped $3.73 to $45.38 a barrel, the highest closing price in five weeks. Copper futures shot up to nearly a four-month high. Grain prices also rallied.

The Reuters/Jefferies CRB index of 19 major commodities rose 3.8%, its biggest one-day gain since Dec. 31.

From Bloomberg News:

"There are signs of optimism about the economy after weeks of very bleak news," said Michael Lynch, president of Strategic Energy & Economic Research, in Winchester, Mass.

"China is key," said Bill O’Grady, chief markets strategist at Confluence Investment Management in St. Louis. "They are talking about doing the right things to boost growth. An additional stimulus program will be good for commodities such as oil and copper."

Yet as my colleague Don Lee reported from Shanghai today, China's next stimulus program is "likely to focus on increasing spending for healthcare and basic needs as opposed to infrastructure projects" that dominated the first spending package announced in November.

In the markets, the bears may just be getting fearful of betting on another big drop with prices already so depressed. The CRB index had closed at a 6 1/2-year low Monday. In the stock market, U.S. blue-chip indexes fell to 12-year lows this week.

Veteran money manager Steve Leuthold of Leuthold Group in Minneapolis had been telling clients earlier this year that he expected the U.S. market to hold above its 2008 lows reached Nov. 20.

He was wrong, but he's still bullish, Leuthold said in a Bloomberg TV interview today.

"These comparisons people make with the Great Depression are totally out of touch with reality, and pretty stupid," he told Bloomberg. "We’ve been in much worse, much more panicked and more scary situations in the U.S."

For today, at least, buyers ruled for most of the trading session on Wall Street. Stocks were broadly higher, with the Dow Jones industrial average rising 149.82 points, or 2.2%, to 6,875.84. Energy stocks and other commodity-related issues led the way.

Still, the market couldn’t hold on to its highs for the session. The Dow had been up as much as 252 points, or 3.7%, before a wave of selling hit in the final half hour.

There was no such second-guessing in China today, where stock markets resumed their 2009 rally. The Shanghai composite index jumped 6.1% to 2,198.11, closing just under its high for the day.

The Shanghai market had been up 31% for the year through Feb. 16, before profit-takers swarmed. With today’s advance the year-to-date gain is 20.7% -- which still ranks Shanghai shares as the world’s best performers this year, by far.

-- Tom Petruno

Photo: Oil traders at the New York Mercantile Exchange today. Credit: Jonathan Fickies / Bloomberg News

Comments

[Ron]

if the Chinese had the same power structure as in America, aka the Republican party, working to undermine all economic recovery efforts, their markets would have responded in a negative manner as well.

[The Mad Hedge Fund Trader]

There is more speculation that China may lead any upturn in the global capital markets. China’s holdings of US government bonds leapt by $250 billion last year, through capital appreciation alone, taking their current market value to roughly $1.25 trillion. To finance a domestic reflationary program, China need only sell some Treasuries, not print money, as the US must. This would involve converting a sizeable chunk of the Middle Kingdom’s productive capacity away from US oriented exports to domestic consumption, particularly accelerated much needed infrastructure spending. This would be painful in the short term, to say the least, but is necessary for the long term. This would enable the Chinese stock market to lead the world out of the current morass. Look at the iShares FTSE/Xinhua China 25 ETF (FXI). www.madhedgefundtrader.com.