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China's post-pandemic economic recovery stumbles

Much of the economic data coming out of China has been weaker than expected. Katy Kaminski, AlphaSimplex Chief Research Strategist, tells Yahoo Finance Live that some investors may have been "over optimistic" about China's post-pandemic recovery.

Video transcript

JULIE HYMAN: Let's move on to economic growth outside of the US for a moment. Because China's economic recovery is raising some red flags for investors as well. But the expectation of monetary easing could change the trajectory for stocks.

The country's biggest banks lowered interest rates on Yuan deposits today. This as regulators also vow to push for more open markets. Remember, on Wednesday, China's exports for May fell below more than expected, with a 7 and 1/2% year-over-year contraction, as manufacturers struggled to find demand abroad over growing geopolitical tensions with the US.

Katy Kaminski is still with us, Alpha Simplex chief research strategist and portfolio manager. So when we look at the China data that we have been seeing, now, a little bit of stimulus coming in. How much is that going to blunt the impact of some of the negative data that we have been seeing?

KATY KAMINSKI: So what we're seeing so far is we've definitely seen the Yuan has increased relative to the dollar in the recent period, we're also seeing that what was been the most tricky for me to understand is commodities. Because commodities have been somewhat under pressure until about recently, the last two weeks or so.

So I'd say that the general narrative has been disappointment from overall potential demand in China. But you're starting to see a little bit of uptick in prices of commodities. So I think that could be an indication that some of that disappointment may be able to ease a little bit.

I think people were just overoptimistic about how quickly this would happen, and how fast demand would come back. And they forget that even if demand comes back, this is still a system that is a little bit in struggling trying to figure out inflation across the world and tightening policy, which isn't an easy place for a recovery.

BRAD SMITH: What the weaker than expected export data that came out of China signal about some of the commodities price action that we may see in the near term now?

KATY KAMINSKI: So you've seen, particularly in the industrial metals like, copper and energies. You've seen a decrease in price recently particularly, since this narrative came about. You've also seen weaker signals in Asian equities than you have, with the exception of Japan, let's just be honest. And so we're definitely seeing those trends in the markets that we follow that you're clearly seeing that some of that is coming into prices, which also can help the inflation data, until it doesn't.

JULIE HYMAN: And it's not just energy. I know that you're watching some of the other commodity prices. I think you mentioned iron ore that was something that you were looking at. So it's not as, though, we're seeing commodity prices across the board go off a cliff or anything like that. We've seen them rangebound in the case of oil prices. But what are you seeing elsewhere? And what does that indicate to you?

KATY KAMINSKI: So I think when people have been asking me, what are the biggest trends? I've said long stocks, short bonds, short commodities. And the short commodity trade has really looked like a recessionary trade. And what's been interesting in the last, say, two weeks as risk on has come back into the markets perhaps as some ease on that demand narrative you just talked about, you've started to see big moves in some of the commodities.

Iron ore was up about 8% since the beginning of this month. And that's a pretty big jump. We've also seen energies coming back after they've been under some pressure. But also, rangebound in more recent periods. So you're definitely seeing commodities move in the other direction for the first time in the last two weeks that we haven't seen.

JULIE HYMAN: Why hasn't this had a bigger effect on inflation? The longer term trend decline in commodities. And I know they're transitory. And it takes them a while to feed through to stuff. Is it just that upward pressure on wages is so persistent? What's going on there?

KATY KAMINSKI: We were talking a lot about inflation during this entire narrative since 2020. And what's really scary about inflation is that it moves. So it's started in the commodity sector. It moves to another part of the economy. And then sometimes it moves back. So that's what we have to think about when we deal with inflation is that, price pressure goes from one area to another. And basically right now, it may not be in the commodities. But it could come back. And then you have again these cycles where you end up with commodity super cycles, which have this dampening and magnifying effect on other parts of the economy.

And that's why I always like to look at them as the first mover until you get another wave. So watch them for that in terms of if you want to see another wave. Having higher oil prices would have the potential to do that as well.

JULIE HYMAN: Yeah. No, thank you.

BRAD SMITH: Exactly.