Confidence Continues in US, EM Fears Deepen
This is the first column in what will be a weekly summary, published every Monday, of market conditions facing the global mining industry. Metals prices remained lacklustre in the week to Friday, September 14, in the face of further market uncertainty.
Much of the focus last week was on the US, as has been quite typical since Donald Trump assumed the Presidency. The week started with President Trump poised to impose new tariffs on China and escalating his administration's attacks on global organisations, and ended with Hurricane Florence about to make landfall in North Carolina.
The US is preparing new tariffs on US$200 billion of Chinese imports, and Beijing has already vowed to retaliate. Raising the stakes, Vladimir Putin pledged on Tuesday that Russia would stand with China to fight President Trump's attacks on their economies. These two previously fractious neighbours have moved closer in recent months, and last week even conducted a joint military exercise, with over 300,000 soldiers from both countries taking part.
Also making news on Tuesday, the International Monetary Fund warned that this escalating trade tension between the US and China was a threat to international markets. The IMF's managing director, Christine Lagarde, told the Financial Times that the uncertainty and a lack of confidence in the global economy was a serious threat, in particular, to developing nations.
Fears over emerging markets deepened with confirmation that South Africa had fallen into its first recession since 2009. Output in the country fell 0.7% in the second quarter, having fallen 2.6% in the first quarter. The rand fell sharply on the announcement, with the currency hitting its lowest level against the US dollar since early 2016.
If that wasn't enough to unsettle mining markets, in a blistering attack last Monday, the White House's national security adviser, John Bolton, said Washington would "not sit quietly" if the International Criminal Court investigates US citizens. In his 20 months in office, President Trump has threatened to abandon institutions and agreements that he believes constrain the US economy and jobs, including the Paris Climate Accord, United Nations Commission on Human Rights, and he recently threatened to leave the World Trade Organization.
More positive news came with the prospect of at least a partial trade deal between the US and the European Union. Reports from Brussels suggest that a deal to reduce regulatory hurdles across the Atlantic could be sealed as early as November. The UK will not, of course, share in any benefits to the EU after March 2019.
Given the market conditions, metals prices were relatively robust. The biggest faller in the week to Friday, September 14, was zinc, down 3.3% to US$2,347/t. The only other decline amongst the major metals was aluminium, down 0.6% at US$2,060/t. Gold improved 0.4% to US$1,210/oz, iron ore (62% Fe) 1.1% to US$69.6/t and nickel rose 1.4% to US$12,560/t. In mid-week, copper broke back above US$6,000/t before retreating. Nevertheless, the red metal closed the week 0.9% higher overall at US$5,989/t.
US equities have enjoyed their longest-ever bull market, and Wall Street recently hit an all-time high. Analysts remain optimistic for the US economy but are becoming increasingly wary of the outlook for China and emerging markets. The mood in New York was further buoyed last week when the Global Financial Centres Index confirmed that the city had overtaken London as the world's top financial centre. Battered by Brexit, London's rating fell to 786, with the Big Apple on 788. Hong Kong remains in third place on 783.