(The opinions expressed here are those of the author, a columnist for Reuters.)
By Clyde Russell
LAUNCESTON, Australia, July 1 (Reuters) - Have commodity markets reached the point where they are ignoring the tweets and rhetoric on U.S.-China trade talks, and are instead waiting for some concrete developments?
Certainly the initial price action on Monday morning after U.S. President Donald Trump’s latest comments hailing a resumption of trade talks with Beijing was subdued.
The U.S. leader was upbeat after the G20 meeting at the weekend in Osaka, telling reporters that the talks were “right back on track,” before later tweeting that his meeting with Chinese President Xi Jinping was “far better than expected.”
The problem is that commodity investors and traders have seen it all before, when positive pronouncements from Trump don’t result in progress toward a deal that will resolve the dispute that has been going on for more than a year.
Like the sheep-herding boy from the Aesop fable who cried wolf repeatedly when there was no danger, it’s possible that markets are simply becoming exhausted by endless news on the trade row without any verified progress.
This is especially the case since the consensus view seems to be that merely re-starting talks and making some minor concessions doesn’t actually herald a breakthrough, and the risk is that the positive message from the G20 summit will once again result in disappointment.
Certainly, if one looks only at actions in the trade dispute, the clear conclusion is that there has been a consistent escalation from both sides, with new tariffs being imposed or existing tariffs being raised on a broader range of traded goods between the world’s two largest economies.
The impact of the tariffs continues to be felt in China, with the manufacturing Purchasing Managers’ Index (PMI) languishing in negative territory for a second month in June.
The index was at 49.4 points, below the 50-level that demarcates growth from contraction. This was the same as in May and just below the market consensus forecast of 49.5.
The breakdown was also weak, with the new export orders component extending a decline to 46.3 from May’s 46.5, suggesting weakness in global demand for Chinese goods.
In the past weak PMI numbers have often seen commodity prices gain, on the expectation that Beijing will act to boost the economy through infrastructure and building construction, both consume raw materials such as iron ore, copper and coal.
Certainly, early price action on Monday saw some upward momentum, with Shanghai copper futures rising as much as 0.4% to 47,190 yuan ($6,869) a tonne initially, before slipping back to be virtually unchanged.
London copper futures fared better, rising as much as 1% to $6,058 a tonne in early trade. Iron ore contracts on the Dalian Commodity Exchange gained as much at 1.8%, while while Shanghai steel futures added a similar 1.9%.
It would be possible to make an argument that investors were responding more to the weak Chinese PMI raising hopes of increased stimulus spending than to any positive view of the U.S.-China trade situation.
Either way, the increases were modest, and don’t appear to show much confidence that a deal to end the trade dispute is imminent, or indeed even likely.
While a resolution of the trade dispute would be positive for commodity demand, it would appear that investors and traders have largely given up on the view that it was in the interests of both sides to seek a speedy resolution.
The Chinese government may be starting to think that their economy can weather the storm and it may be better to see if Trump wins a second term in next year’s election, and if he doesn’t whether it will be easier to negotiate with his successor.
Trump has in some ways backed himself into a corner by constantly claiming he will deliver a great deal for the United States, something Beijing has increasingly little incentive to deliver to him. (Editing by Richard Pullin)