Sino-U. S. trade spat hurts commodities

The brewing trade war between China and the U.S. is claiming commodity markets as one of its first victims.

The Bloomberg Commodities Index, a measure of 26 raw materials, lost 2.7 per cent this week, the most since February. The losses stand out in a week when other risk assets, like emergingmarket stocks, were in the green.

Soybeans have been hardest hit, with pricing falling to its lowest in almost a decade, as China’s duties on U.S. supplies took effect. Metal and energy markets were also caught by fears that the trade spat will set off a global economic slowdown. Earlier this week, copper prices sank to almost a one-year low.

China, the biggest consumer of everything from copper to coal, has warned that the proliferation of tariffs could cause a global recession.

“We have so many shorts in the market that there is a real possibility of a squeeze occurring next week,” said Oliver Nugent, a commodities strategist at ING Bank. He said the trade dispute, and ensuing losses in commodities, are likely to remain until after the U.S. midterm elections in November.

“We don’t think Trump necessarily has the incentive to dial back,” he said.

Traders are also closely studying data from China for evidence of a slowdown. On Friday, reports showed weaker-than-expected growth in imports, and indicators of investment, factory output and retail sales growth all slowed in May.

The main market movers include:

Copper: Often regarded as an economic bellwether, the metal has taken a beating in the past month. Prices are poised for a fifth weekly loss, the longest such slump since 2015.

Oil: Futures in New York have plunged 4.2 per cent to US$70.70 a barrel this week. Short-term bearish signals for oil prices on the supply side include Libya restarting a key oilfield that had been shut since February.

Soybeans: Soybean prices lost 6.5 per cent this week. China’s imports of the oilseed are likely to decline for the first time in 15 years.

Mining stocks: The Bloomberg World Mining Index is poised for a fifth straight weekly loss. Glencore, the world’s biggest commodities trader, lost 4.7 per cent.