Baku, Azerbaijan, April 10
By Anvar Mammadov - Trend:
Global markets have been caught up in rising tit-for-tat US-Sino trade tensions, Ole Hansen, head of Commodity Strategy at Saxo Bank, told Trend April 10.
After China fired back at US trade tariffs the market went from risk off to on and back to off again after conflicting signals emerged from the White House, he said.
“Overall, commodities traded down but off their lows with soybeans and crude oil being some of the biggest losers,” he added. “Commodities initially got hit when China published a list of 106 US goods worth a combined $50 billion that would be subject to a 25% additional import tax. This followed the White House publication of a list covering 1,300 products of imports from China ranging from industrial technology to transport and medical products. The response from China included a wide range of US goods including soybeans and other agriculture products, as well as items from cars to chemicals and whiskey, cigars and tobacco.”
“The announcement triggered heavy selling in global stock market indices with an escalating trade war potentially impacting growth and demand,” Ole Hansen noted. “Growth worries hit cyclical commodities such as oil and industrial metals while gold received a muted safe-haven bid. Hardest hit, however, was the agriculture sector with key crops such as soybeans, corn and cotton being hurt by selling from speculative funds being caught on the wrong side of the trade.”
What followed was a "good cop bad cop" response from the White House with Donald Trump's recently appointed economic adviser, Larry Kudlow, managing to rally the market after expressing willingness to step up discussions with China, the expert said.
“The calm only lasted for one day until Trump instructed US officials to consider an additional $100 billion tariffs against China,” Ole Hansen said. “US soybean futures slumped on the news as it put at risk its trade in the commodity with China, the world's biggest buyer of US soybeans. Once the dust settles it is very unlikely that the US and China can live without each other, as other major exporters, especially in South America, are unable to meet China's fast-rising demand. Last year, Brazil already supplied half of China's soybean imports, with the US shipping around one-third or 33 million tons valued at $12 billion.”
“A great deal of speculative longs in soybeans and corn got caught offside on the Chinese announcement,” he added. “Not least after traders bought both crops following the recent prospective planting report showing that US farmers intended to plant less soybeans and corn this year than previously expected.”
“The market worries that a trade war could derail global growth and with that demand for growth-dependent commodities such as copper,” Hansen said. “So far the only damage to the metal these worries have done is to wipe out what was a record speculative long position held by hedge funds in HG copper futures.”
Crude oil's pre Easter rally on Iran sanctions risk and the tense Saudi-Iran relations failed to attract enough momentum for the price to break the January high, according to the expert.
“This has left the technical outlook somewhat challenged, not least considering another run up in speculative buying during the past few weeks,” he said. “A weekly drop in US inventories provided some relief despite most of the change being driven by another record week for US exports. China has become a major importer of US crude oil and as they vow to fight Trump tariffs 'to the end' a second round of tariffs could potentially hit this growing trade. If realised, it risks adding some relative pressure to WTI against Brent due to a potential struggle to find other buyers without offering a wider discount.”
“A relatively high correlation to the US stock market is almost certain to ensure continued volatility in oil prices as trade tensions ebb and flow,” he noted. “The May deadline for the US decision on Iran sanctions, combined with continued attempted missile strikes from Yemen into Saudi Arabia, are likely to keep the market supported. This will remain so as long the technical outlook does not deteriorate much further.”
“We maintain the view that oil is likely to remain range-bound with the short-term risk skewed to the downside but potentially limited to between $62.5/b and $60/b,” Hansen added.
