China loosens money supply again, watch miners here

The People’s Bank of China “subtly” moved overnight to relax its bank reserve requirements, effectively giving the country’s lenders a green light to unleash a fresh $63 billion on the liquidity-starved Chinese economy. Look to see that money go to work — and get ahead of the trend.

We have been watching for moves like this since October. With exports from China looking soft, this will give domestic manufacturers access to the credit they need to float through the rough patch and even invest in new channels for future growth.

The money will become available on February 24, when China’s biggest lenders will only need to keep 20.5% of their assets locked up in reserve.

As per the last reserve ratio cut, look to see traders rotate into miners that sell a lot of product to Chinese customers: BHP Billiton (BHP, quote), Vale (VALE, quote), Rio Tinto (RIO, quote).

And look for more ahead as China gets more into what seems to be a global stimulus party.

One note: Real interest rates in the country are still negative, favoring speculators and punishing true savers, so do not expect an outright interest rate cut in the near term. Chinese banks still have $2.7 trillion in reserve that Beijing will unleash first.

Credit will remain expensive in China. But access is loosening on what has become a monthly basis.

This will be great news for the markets on Monday. Look for Shanghai (FXI, quote) to lead the way.

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