China’s new loans rose to 390 billion yuan in November, up from 220 billion yuan in October. This increase shows greater support for the economy as China continues its recovery. While more loans can encourage investment and consumer spending, there are worries about how sustainable this growth is and the rising levels of debt. This lending boost is part of new policies aimed at improving the economy during uncertain global times.

Monitoring Credit Expansion

Economists say we need to watch how effective these measures are for a lasting recovery. China’s credit expansion will affect both its own market and the global economy, as businesses look for increased demand in various sectors. The financial industry will closely monitor these changes. The large increase in loans last month points to a strong effort to stimulate the economy. For derivative traders, this likely means an uptick in demand for industrial metals and energy in the coming weeks. This suggests we should consider long positions, such as buying call options on copper and crude oil futures. We are already seeing market signs: copper futures recently surpassed the $4.10 per pound resistance level. This gain is backed by iron ore prices, which have risen over 5% in the last month to nearly $140 per tonne due to renewed optimism. These trends make strategies like bull call spreads appealing, allowing us to take advantage of potential gains while managing risk. Economic support from Beijing usually strengthens commodity-linked currencies. Therefore, we are keeping an eye on the Australian dollar, which has moved above 0.68 against the US dollar. Options on the AUD/USD pair could be a good way to trade expected volatility as markets reflect on the lending data.

Lessons from Past Stimulus

Historically, we saw similar effects after major stimulus packages following the global financial crisis in 2008-2009, which led to a multi-year bull market for commodities. However, we must also recall the market response during the early 2023 post-pandemic reopening, where initial stimulus-driven rallies in Chinese stocks quickly faded. This indicates we need to be ready to take profits on short-term trades and stay cautious about the long-term viability of this credit-driven growth. Create your live VT Markets account and start trading now.

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