Commodities outlook: All about the trade wars!

16th July 2018 12:10

by Rajan Dhall from interactive investor

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Industry analyst Rajan Dhall discusses where investors should expect oil, gold and copper prices to move this week.

Commodities continue to take a battering from the trade war rhetoric, and the one hope this week was for a sustained recovery was the data from China.

GDP data came in as expected overnight although under the magic 7% number (6.7%).  However, the main area in which the metals market was looking for an improvement was industrial production and, unfortunately, the year on year figure missed the 6.5% forecast to record a reading of 6%.

This has led base metals to be the worst overnight performer as zinc fell 2.39%, nickel 1.45%, lead 1.45% and copper 0.32%. 

Past performance is not a guide to future performance 

Gold remains at depressed levels. Two weeks ago, it looked like those lower levels had been rejected and we may have seen a move back up, but we have since drifted lower and have dropped back below the all-important $1,250 level.

This seems counter-intuitive as risk sentiment looks to be hanging on a knife-edge. President Trump can continue with his explosive verbiage at any stage, stockmarkets are yo-yo-ing around (and at precipitous levels), while there is clear potential for further escalation in an all-out trade war between the US and China.

There is every possibility we could see a recovery, but the US dollar strength would have to reverse and the safe haven market of choice at the moment (US 10-yr) would need to see some outflows. 

Past performance is not a guide to future performance 

Oil markets are finely balanced at the moment. OPEC is happy with prices and looking to gradually return output back up to more familiar levels, while geopolitical tensions seem to be out of fashion.

Last week, prices dropped back from the $75 a barrel (/bbl) resistance level to a low of $69.26/bbl, but OPEC was not the only catalyst for the move lower as it seems that Libyan production may be coming back into the market at a quicker rate than expected.

Libyan output was disrupted by port closures that have since been resolved. Last month, after two weeks of fighting with several other armed groups at Libyan ports, the Libyan National Army (LNA) gave control back to National Oil Corporation which said it could have the oil field up and running in a very short time period.

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