The prolonged global trade war is starting to take a pause, as the U.S. and China agreed to slash tariffs for 90 days. While this change might appear short-lived, investors have seen some interesting developments in market investments, and big retailers are starting to show enthusiasm. U.S. stocks are beginning to rally, and other assets like commodities might respond differently over the next few months. Here's how investments, especially commodities, are performing following the latest tariff shocks.
One conversation that has been recurring for the last months is the United States' tariff war. It all started when the Trump administration announced new tariffs on imports into the U.S. for over 50 countries. It's been months of negotiations, investments tumbling, and stocks crashing dramatically, but finally, things are looking promising. The last key fact from these events was that the U.S. raised Chinese import fees to 145%, and the Chinese administration retaliated with 125%. However, today, there is news of both parties cutting these fees drastically, from 145% to 30% and 125% to 10%, respectively. As expected, investments have been reacting differently to this development, and the question is, will investors see notable changes in commodities as well?
The scale of the Trump administration's tariff announcement has shattered investors' hopes, sending the S&P 500 down 10% in the first two days. The commodities market has also been under significant pressure, since these tariffs directly impact trade with the country's major partners. The rising concerns with import duties and the escalating trade tension aren't improving. The energy sector, oil, agriculture, and other commodities are naturally expected to be caught in the crossfire.
The oil market has been under significant pressure since the start of the trade tensions. ICE Brent broke below $60/bbl last week, trading at the lowest since February 2021. Over the past months, the uncertainty amongst global partners has been a considerable detriment to investors' sentiments, generating significant headwinds for oil demand. However, this performance has had some notable changes following the recent truce. Reuters reported crude oil futures climbing more than $1.60 a barrel on Tuesday, May 13th. Brent crude futures settled at $66.63 a barrel, a significant increase considering the values recorded in April.
While other sectors are experiencing some challenges, precious metals have performed better. This could be attributed to the "safe haven" effect that these assets have on investors. Commodities like Gold and silver are considered safe-haven assets, and sometimes provide resistance to economic and geopolitical uncertainty. The selloffs triggered in other sectors have been diverted to precious metals as recorded on trading platforms like TradingView, causing massive surges in the industry. Gold saw a historic peak at $3500 in April before gradually returning.
Unlike precious metals, these assets have shown mixed performances, and it's understandable why this is so. Some of the United States' major partners in industrial metals, such as copper and aluminium, were also caught in the crossfire, with the UK being one of them. There is, however, some stability today. Bloomberg Industrial Metals Index shows copper, aluminium, zinc, nickel, and others doing over 15% after the tariff cut.
Some key U.S. agricultural products, including soybeans, corn, wheat, and meat, have been affected, particularly due to the disputes between the U.S. and its major trade partners. These actions have made its exports less competitive, especially in the Chinese market, which has turned to Brazil and Argentina for agricultural imports. Reduced export demand and increased global competition have led to declining prices for major U.S. crops. Soybean prices, for instance, have dropped to around $9 per bushel, down from $10.60 earlier this year. Similarly, corn and wheat prices have seen significant declines.
The commodities market looks the most promising, and while it calms, it's advisable for traders to look to safe-haven assets such as these. Gold, silver, and some other industrial metals are doing relatively well and might be a great way to steer clear of volatility. On the other hand, the temporary truce between the U.S. and China has impacted investors' sentiment positively, thereby driving a rally amongst other investment classes. Consider watching the market for possible opportunities in the coming weeks, as there might be a lot of rebound soon.
We could say the worst is over, considering both parties held out for so long before coming to a truce. The U.S. seemed to have waved the green flag, and investors are optimistic that this could be the end of the tariff war. Several investments have shed drastically over the past months, including commodities, and are now starting to rally. However, we cannot be sure what moves the Trump administration has left in its arsenal. As an investor, it's advisable to watch out for economic and political news so you're able to catch trends that could affect your portfolio early.
