US Growth Continues

Metals retreat at the start of a new quarter after the end-June hike, but economic growth continues in the US for the 121st consecutive month. Interest rates are at historical lows in China, Germany and Australia.

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Last week marked the longest uninterrupted period of US economic growth in modern history. President Trump claimed credit for the expansion, but the growth has lasted a decade, with the US recording 121 months of economic improvement. This now surpasses the boom of 1991-2001, but the expansion, although long, has been relatively weak by historical standards.

More jobs were added to the US economy in June than since the beginning of the year (non-farm payrolls up by a net 224,000 last month) with consumers continuing to spend heavily (and consumer spending represents 70% of the US economy).

The latest economic and jobs data has subdued expectations that the Federal Reserve will cut interest rates. As a result, the yield on two-year US Treasury bonds jumped to three-week high of 1.87%.

Investors in the US remain concerned about yield curves, which have now been inverted for a full month. The yield on 10-year Treasury bonds has fallen sharply below yields on three-month US government debt, and sliding long-term interest rates have historically been a reliable indicator of a recession.

The G20 summit in Japan failed to resolve trade tensions dogging the global economy (not helped by the UK seizing an Iranian oil tanker apparently on-route to Syria). Indeed, the global manufacturing slump deepened in June, with the Financial Times reporting that a manufacturing index produced by JPMorgan and IHSMarkit fell to its lowest level last month since 2012. New orders weakened sharply in June, and business optimism is at the lowest level on record.

The US is only region in which manufacturing activity appears to be expanding, and equity markets there are still at record highs (although company valuations are always slow to respond to economic conditions). However, the uncertain global growth outlook saw fixed income exchange-traded funds in the US attract US$25.4 billion in June, which is the biggest monthly inflow on record.

In contrast to the higher bond yields in the US last week, German 10-years Bund yields were trading at an all-time low of minus 0.4% following a bigger than expected fall in the country's factory orders. Elsewhere, short-term borrowing costs in China have fallen to their lowest level since April 2009 (in the aftermath of the global financial crisis), and the central bank has hinted it could engage in more substantive easing. In Australia, interest rates have fallen to a record low after the central bank reduced its cash rates for a second successive month, to 1%.

Mining Markets

Last week saw a reaction to the end-June jump in metals prices, with only aluminium and gold rising week-on-week amongst the major metals.

After the previous week's price improvement for the first time in two months, zinc resumed its downward trend, falling 3.2% last week to close in London on Friday at US$2,412/t. Copper and nickel both fell 1.6% last week, to close at US$5,893/t and US$12,470/t respectively. However, aluminium improved 0.3% to US$1,802/t, and gold rose again, closing in London on Friday at US$1,415/oz (but has subsequently fallen back below US$1,400/oz).

Iron ore jumped to over US$126/t (62% Fe) in the middle of last week on reports of a recovery in Chinese steel demand. However, China expressed concern about the sharp hike in imported iron-ore prices, and announced an investigation into "abnormal behaviour". That seemed enough to worry markets, and the iron ore price tumbled on Friday for an overall week-on-week decline of 3.1% in London to US$114.3/t.

Barrick Gold and Newmont Goldcorp have completed their deal to set up a joint venture in Nevada, which combines their core gold mining assets in Nevada. The Nevada Gold Mines JV
is owned 61.5% (and operated) by Barrick and 35.8% by Newmont. 

Chris Hinde

Chief Commentator, Mining Beacon

Previously editorial director of Mining Journal, and more recently head of S&P Global Market Intelligence's metals and mining team, Chris is now Mining Beacon's editor-in-chief and lead commentator. He posts two blogs every week, one on Monday reviewing market conditions over the prior week, and a second on Thursday looking at issues on the global mining scene. There is also a quarterly blog on business opportunities in the sector.