So if you weren’t paying attention on Sunday evening, you missed a rather remarkable move higher in iron ore catalyzed by this truly hilarious tidbit from China’s official PMI data (which missed on the headline prints, but folks found a sub-index to cheer):
Construction industry boom to enhance the high.
With the continued investment in key areas, infrastructure investment continued to run high, this year the construction industry to maintain rapid growth in production, this month’s business activity index was 62.5% , up 1.1 percentage points from the previous month , the highest point in recent years.
Yes, the business activity index “boom[ed]” to 62.5 and that should “enhance the high.”
Again, it certainly did “enhance” iron ore, which “boomed” to a four-month “high”:
So you’d think that would be stoking some bets on “reflation,” or at least on the odds that policymakers have more room to tighten thanks to upbeat construction data from the engine of global growth, global trade, and importantly, global credit creation.
Well, you’d be wrong. Or at least if you’re using Treasurys as a measure of reflation optimism.
“The iron ore rally that has affirmed optimism over Chinese growth and buoyed European miners isn’t rousing bonds,” Bloomberg’s Kristine Aquino writes this morning, adding that “Treasuries are proving resilient amid the risk-on sentiment associated with iron-ore gains, perhaps as investors pare expectations for another Fed rate hike this year.”
With that in mind, have a look at the 14-day correlation between TY and iron ore futs:
As Aquino goes on to note, what we’re seeing today stands in stark contrast to what we saw from June to early July, “when U.S. 10-year note futures extended declines while iron-ore futures advanced as the 14-day correlation between the two hit the most negative level for 2017.”
In other words: bonds ain’t buyin’ it.