Charlie Long, Resources Analyst at Beaufort Securities states the markets have been defying fundamentals since the QE1 days and from then on the markets have been at the mercy of the central bank actions. Long details the fundamentals of the commodities/mining space and explains the correlation between the spikes in China domestic steel prices (in yuan terms) and the rebound in the commodities/miners in Q1 2016.
Long believes iron ore is likely to defy gravity despite increasing number of bearish calls due to Chinese stimulus. He explains that stimulus in China normally results in strength in commodity prices. Note that, off late a number of major investment banks including Australian government have revised their annual iron ore price forecasts lower.
Coming to the rally in equities, Long notes that it is against fundamentals and mainly due to the fact that there are very little avenues left, given the already negative yields on bonds. “Central banks believe they are doing well, but in reality they are distorting the natural course of action”, Long says.