John J Hardy
Saxo Bank’s head of FX strategy John Hardy takes a closer look at trends and moves in today’s forex charts, including EURUSD, USDJPY, AUDUSD, and EURSEK.
Article / 06 April 2018 at 13:18 GMT

WCU: Commodities hurt by raised trade tensions – #SaxoStrats

Head of Commodity Strategy / Saxo Bank

  • US-China trade tiff gives commodities a roller-coaster ride
  • Soybeans and crude oil were among the week's biggest losers
  • Commodities ended the week down but off their lowest points


 This trade dispute is getting bigger and uglier by the day. Pic: Shutterstock

By Ole Hansen

Global markets have been caught up in rising tit-for-tat US-Sino trade tensions. 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. Overall, commodities traded down but off their lows with soybeans and crude oil being some of the biggest losers.

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. 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 calm only lasted for one day until Trump instructed US officials to consider an additional $100 billion tariffs against China.

One week performances

Source: Bloomberg, Saxo Bank

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. 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 new crop futures of November Soybeans and December Corn both got hit before attempting to recover.

Soybeans and Corn

Source: Saxo Bank

The market worries that a trade war could derail global growth and with that demand for growth-dependent commodities such as copper. 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.

Following more than three months of almost non-stop selling, the fund position has returned to neutral for the first time since October 2016. During this time of selling it has, nevertheless, managed to stay within its established range between $2.95/lb and $3.3/lb.

COT on HG Copper

Gold's recent performance has once again been disappointing the bulls who have been backing the yellow metal through increased long positions in both futures and exchange-traded products. A dismal relative and absolute performance among the industrial demand-dependent white metals of palladium, platinum and silver has emerged as a drag on gold's ability to move forward and properly challenge a key band of resistance above $1355/oz.

Gold investments through futures and ETP


Trade tensions between the US and China and indirect military tension between Saudi Arabia and Iran though the latter's support for Houthi rebels in Yemen have not been enough to counter the negative impact of a pickup in stocks, bond yields and the dollar during the past week.

The uncertain geopolitical outlook and increased stock market volatility is likely to continue to provide some underlying support. There's no doubt, however, that multiple rejections since 2016 are likely to have sidelined potential buyers who are now happy to sit on the fence while waiting for a potential break above $1375/oz, the 2016 high. 

The monthly US job report gave gold a small but temporary boost as monthly the job creation came in at 103,000 somewhat lower than the expected 185,000. A steady read on hourly earnings supported the view that the FOMC is currently in no hurry to hike rates this year by more than the two currently expected.  

Not a great week for gold with rising stocks, dollar and yields more than offsetting potential safe haven demand from heightened trade tensions.

Spot Gold

Source: Saxo Bank

Crude oil's pre Easter rally on Iran sanctions risk and the above mentioned tense Saudi-Iran relations failed to attract enough momentum for the price to break the January high. This has left the technical outlook somewhat challenged, not least considering another run up in speculative buying during the past few weeks.

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.

US oil stocks and export

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. 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.

WTI Crude oil

Source: Saxo Bank

– Edited by Clare MacCarthy


Ole Hansen is head of commodity strategy at Saxo Bank

Market Predator Market Predator
Nice! Lot of geopolitical tensions so lot of content to analyse/comment. Thx!
Anatoly Vyacheslav Anatoly Vyacheslav
This comment has been redacted


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