Commodities see no light at the end of the tunnel as global trade wars instil fear for future demand and emerging market currencies tumble
Cross Commodities suffered over August as the ongoing trade battle between Washington and China dampened hopes for future demand, with industrial meals hit the hardest. Worsening relations between the United States and Turkey raised concerns over further currency depreciation in emerging markets as the U.S. economy and equity markets record new highs.
CHART ONE: PRICE PERFORMANCE ACROSS MAJOR ASSET CLASSES (Index 1st August 2018=100)
KEY DRIVERS FOR COMMODITIES OVER AUGUST
The ongoing trade battle between China and Washington escalated over August, with the United States proposing a higher 25% tariff on $270 bn worth of Chinese imports, while China retaliated by adding a 5-25% tariff on a reported (by Reuters) 5,207 items imported by the United States estimated at $60 bn. This is in comparison to the estimated $46 bn of tariffs implemented by both countries over the previous month.
To see a full timeline of trade threats and implementations between Beijing and Washington, please see our ‘Global Trade War Timeline’ on our Cross Commodities Homepage here.
CHART TWO: GLOBAL EQUITY MARKET INDEX (Index 2nd January 2018=100)
CHART THREE: U.S. DOLLAR VERSUS THE CHINESE YUAN
Despite the outcome in the August meeting of the U.S. Federal Reserve resulting in interest rates remaining unchanged, the release of positive economic data for the second quarter (Q2) period, in which GDP rose by 4.2% (0.1% higher than the preliminary estimate), personal consumption rose by 1.9% (over 1.8% in Q1) and business investment increased by 8.5%, is likely to result in interest rates rising in the September meeting.
CHART FOUR: S&P 500 & DOW JONES INDUSTRIAL AVERAGE
CHART FIVE: 10 YEAR, 6 MONTH AND 3 MONTH GOVERNMENT BOND YIELDS
Relations between the United States and Turkey worsened as President Trump proposed to double tariffs on Turkish aluminium and steel imports, resulting in the two commodities fetching a 20% and 50% tariff respectively. With the Turkish economy already in turmoil, the lira continued to plunge over the month by 35%.
CHART SIX: TURKISH LIRA VERSUS THE U.S. DOLLAR
The U.S. dollar remained almost unchanged over the month of August, rising by 0.5%, although on a year-to-date basis continued to hold on to a positive price return at 3.6%.
While the potential for higher U.S. interest rates and indeed turmoil in emerging market economies boosted the greenback, gains were limited by the ongoing escalation in global trade talks and indeed on President Trump’s announcement that he was ‘not thrilled’ with the U.S. Federal Reserve’s hawkish sentiment towards interest rates.
Main Movements
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