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Last week was probably the most epic geopolitical week in years. It featured yet another iteration of US/Chinese trade barbs, an escalation of Russian/US military tensions, and a missile attack by Yemeni rebels against Saudi Arabia. Countervailing these headwinds were…
While the trade rift between the US and China could eventually be settled peacefully, it could be very difficult to avoid further escalation in the coming week. As of last Friday, it appeared as though the trade war threats were extended beyond the governmental level and to the populace in China, with calls to “buy Chinese” and boycott US products. China also threatened to increase…
With US scheduled data into the end of March/end of quarter coming in positive and the trade facing the March nonfarm payroll report at the end of this week, it is possible that US economic expectations will be improved and markets like Treasuries, equities, copper, silver, platinum and palladium will resume the trends in place from the end of February. However, physical commodities…
Following turbulent trading last Wednesday and Thursday, global markets were showing some signs of stability ahead of the weekend. While the announcement of US tariffs on Chinese goods have led to a flare-up of trade friction and dampened risk appetites, there is some potential for tensions to cool down, as businesses will have a chance to discuss many of the tariffs with the US government before they go into effect.
It would appear that US scheduled economic data has returned to a choppy standing, but recent Asian data has clearly surprised on the upside. Chinese retail sales figures nearly returned to double digit percentage gains over year-ago levels, and those optimistic results were matched by strong data from Japan. Unfortunately for many physical commodities, the dollar has seemingly regained some favor, and “buy the rumor” action into the upcoming FOMC meeting might see that action extended.
After an eventful trading week last week, global markets are holding onto a positive risk tone. President Trump formally announced steel and aluminum tariffs, but there were exceptions for Canada and Mexico that softened its impact on risk appetites. There has been pushback from Capitol Hill, the business sector and major central banks that could keep trade tensions subdued.
While the fear of a series of 2018 rate hikes has provided commodities with a double negative from a rising rates/strengthening dollar perspective, we think the path to higher rates won’t be as direct as what was priced into the market in late February. First of all, we think the excess stock market volatility from the beginning of February will serve to soften the February scheduled release data (the first of which will be the employment report on March 9th), and that could temporarily pull back the anticipated number of rate hikes.
While the equity markets have not completely left the confidence-shaking volatility from early February behind, their ability to maintain a good portion of their gains from the recovery bounce has calmed investors and softened the negative vibes in the commodity markets.
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