The Bloomberg Commodity Index, which tracks the performance of 22 futures markets across energy, metals and agriculture traded lower for a second consecutive week. The global growth outlook and with that future demand for many key commodities remain challenged by the prolonged trade war between the U.S. and China.
With the negative impact on trade becoming increasingly apparent, both sides have been signaling a willingness to reach an agreement. So far however, getting past the goal line with a light phase one deal has so far proved difficult. As a result, several markets have witnessed dump and pump behavior with the price action being determined by the ebb and flow of trade news from Washington and Beijing.
Growing expectations that a deal will be reached has triggered record stock levels in the U.S. and rising bond yields while the Federal Reserve has signaled a pause on further rate cuts. Most recently Larry Kudlow, the White House economic adviser, said negotiations on a first phase deal had entered the final stages. We are however concerned that the eventual result may struggle to live up to market expectations. Further uncertainty lies ahead with the low point in U.S. and Chinese growth most likely still in front, not behind us.
On that basis we continue to favor precious metals over growth-dependent commodities such as energy and industrial metals.