Commodities Futures and Options Brokerage

Paragon Commentary

Futures File: Beans, Stocks, and Gold

Jul 06, 2018

Trade War Begins, Traders Buy Beans

After months of posturing, the first cannonballs in the trade war between the U.S. and China were fired on Friday morning, as each nation officially imposed $34 billion in tariffs on one another’s exports.

President Trump indicated that he will impose tariffs on another $16 billion in imports next week, with the possibility of extending the taxes to $500 billion of Chinese imports.

For commodities traders, soybeans are the most affected market, as China’s tariffs are directed against U.S. soybeans. With the tariffs officially in place, beans fell to $8.34 per bushel, the lowest level in nine years.

However, optimistic traders bought beans on Friday morning, citing an adage, “the time to buy is when there’s blood in the streets.” Recent reports are suggesting that this year’s soybean crop is record large due to great weather, and the world’s biggest buyer now has taxes in place against our soybeans, leading many to believe that things cannot get much worse. As of midday Friday, soy had soared 30 cents (+3.5%) off the low.

 

U.S. Economy Cruising Along

Even after the trade war with China officially began this week, stock markets rose, a sign that U.S. companies may weather the storm.

There is ongoing hope that U.S. tech companies will benefit if President Trump can negotiate a deal to better protect American technology in China, which is keeping the tech-heavy NASDAQ near all-time highs. There have also been indications that trade negotiations with the European Union have been working, which may result in more U.S. auto sales to Europe, a big boost to U.S. manufacturing.

Meanwhile, the U.S. economy continues to steadily add jobs and unemployment remains low, keeping business optimism high and S&P 500 futures trending higher.

 

Metals Melt Lower

Gold and silver prices continued declining this week, reaching a six-month low at $1239 and $15.72 per ounce, respectively.

A strong economy and rising interest rates in the United States make holding onto metals less appealing, since they don’t pay interest, dividends, or rent, unlike other assets such as bonds, stocks, or real estate. These factors and increasing belief that the Federal Reserve will manage inflation have diminished demand for metals, knocking them to new lows on Wednesday.

Longer-term, economic or political uncertainty could give the metals a boost, as could bargain-hunting buyers, who have swooped into the markets in the past when gold falls to $1200 or silver drops to $15 per ounce.

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