Playing the China Commodity Trade

In the wake of new efforts by China's central bank to cool its economy, "Fast Money" traders are monitoring commodities Friday.

The People's Bank of China raised bank reserve requirements by half-a-percentage point on Friday as a way of clamping down on inflation. It was the sixth reserve hike this year and the third in the past five weeks. China’s inflation hit a two-year high of 4.4 percent in October and many economists expect inflation to come in near 5 percent when the People's Republic reports that data on Saturday. Such growth would be well above China’s 3 percent target inflation rate.

Kanundrum Capital’s Brian Kelly was looking at copper’s reaction to rising prices in China. The metal was soaring on demand from the country and little hampered by rumors of an impending rate increase, unlike gold and silver.

“I am looking at the strength in copper this morning,” said Kelly, adding “imports into China were up more than expected.”

Virtus’ Joe Terranova was also looking at the metals trade off of the China data.

“I still think gold is going down,” Terranova said. Early trading supported his thesis, as the precious metal fell.

Kelly also noted that cotton prices, up on larger than expected China demand, were also rising on a weak crop report from the U.S. Department of Agriculture. The USDA cut the cotton crop forecast 0.8 percent due to hailstorms wreaking havoc on the Texas crop. The commodity first hit 140-year highs in November and has continued to climb. It is up more than 83 percent for the year.

“The crop report was extremely bullish for cotton,” Kelly said.

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