China commodities

Don’t Forget That Iron Ore Crashed Last Night…

So last night Moody’s downgraded China for the first time since 1989.

China was pissed.

The reaction in regional equities and FX ended up being muted thanks in no small part to what certainly looked like a late session intervention by Beijing’s infamous “national team.”

But one thing you should note is the reaction in iron ore. As we wrote in “Dangerous Dynamics,” the situation in China, and specifically the country’s effort to rein in speculation, has the potential to destabilize commodities (and especially metals) in two ways: 1) by curbing credit expansion and thereby weighing on growth, and 2) by triggering an unwind in trades financed by shadow conduits.

Well, as we wrote first thing this morning, iron ore futs on the Dalian nearly traded limit-down following Moody’s decision.

If you remember what happened earlier this month, you know that this is the kind of thing that can spook markets if it gets out of hand, which is why we wanted to show you the visual which you’re encouraged to file away for posterity…



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