Beijing unveiled on Tuesday new monetary and property-market stimulus measures to give its anemic economy a jolt. While the jury is out on how successful this China stimulus will be, the policy moves ignited a stock market rally that extended beyond China’s shores to global commodities markets. On U.S. markets, Alibaba (BABA), JD.com (JD) and EV play Nio (NIO) were among Tuesday’s big movers in early trade.
A jump in copper prices is powering Freeport-McMoRan (FCX), while lithium stocks including Albemarle (ALB) hit the accelerator. A jump in aluminum prices is propelling Alcoa (AA). Even global economic bellwether Caterpillar (CAT) is taking part, giving the Dow Jones Industrial Average a lift.
Economists characterized the array of China stimulus moves as the most forceful since Beijing ended its zero-Covid policy in late 2022.
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China Stimulus: Mortgage Rates Cut
Among monetary measures announced by the People’s Bank of China is a 50-basis-point cut in the reserve ratio that determines how much cash banks need to keep on hand. That move should free up $142 billion in liquidity, China’s central bank said. A further cut of a quarter-point or half-point could come in the fourth quarter.
Beijing also said it would cut existing mortgage rates by about a half-percentage point. That stands to save Chinese households $21 billion per year in mortgage payments, People’s Bank Governor Pan Gongsheng said. Further, the down payment requirement for second homes will be cut to 15% from 25%.
At the same time, China’s central bank said it will double down on a new program that funds the purchase of unsold homes by state-owned enterprises to convert to affordable housing. That should deplete unsold housing inventory that has dragged down property prices.
BABA, FCX, CAT Join Broad Stock Rally
Despite multiple stock market rallies over China stimulus moves in the past two years, China’s economy has continued to falter. That has implications for the whole world, since manufacturing overcapacity in China fuels the export of cheap imports abroad.
Improvement in China’s property market would be a big positive for the price of copper, a key ingredient in pipes and electrical wire used in new construction. On Tuesday, the near-term futures contract for copper rose 2.6% to $4.46 a pound. FCX rose 4.7%, while Teck Resources (TECK) rose 4.3%.
The near-term aluminum contract shot up 2.8% to $2,560 per ton, giving Alcoa an 8.2% boost. Alcoa, FCX and Teck have all broken above trend lines from recent highs, flashing early entry opportunities.
More money in the pockets of Chinese consumers is good news for EV plays such as Nio, which jumped 6.8%. That could support lithium prices, helping Albemarle to a 4.4% gain.
Caterpillar now has pretty modest exposure to China’s construction sector, but CAT stock rose 2.2% in early Tuesday stock market action. Improved growth in China would provide a boost for the global economy.
Dry bulk shipping play Golden Ocean Group (GOGL) rose 6.1%.
Among Chinese e-commerce names, Alibaba rose 5.5% and JD 7.4%. Alibaba stock is still down more than two-thirds from its peak in 2020, but BABA broke out from a cup-with-handle base late last week.
Be sure to read IBD’s The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.
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