Trade war fears have kept investors on their toes in 2018. The US has been engaged in trade wars with several countries. After the initial fire and fury, the Trump Administration has moved forward on new trade deals. Earlier this week, Mexico and the US reached a new trade deal. However, we’ll have to see if Canada joins the agreement.
Trade wars have taken a toll on some assets. Although US equity markets are making fresh highs with the PowerShares QQQ ETF (QQQ) up 18.9% in 2018, Chinese equity markets have sagged. The iShares China Large-Cap ETF (FXI) has fallen 5.3% year-to-date based on the closing prices on August 28.
There’s also divergence in US markets because industrials and metals and mining stocks have been subdued. In the US markets, investors’ unending appetite for FAANG (GOOG) (AMZN) stocks has been a key driver of broader market returns. Since China is the biggest metal consumer from aluminum to copper, prices have taken a hit due to concerns about the country’s demand outlook.
While base metal prices have come under pressure in 2018, it has been business as usual for metal companies. Freeport-McMoRan (FCX), the leading US-based copper miner, said that it sees strong demand despite trade war concerns. Although investors have given a cold shoulder to metal and mining stocks due to concerns about China’s economic growth, the underlying demand-supply fundamentals haven’t changed much. Global steel production has been on an uptrend due to higher production in China as well as world ex-China.
Next, we’ll discuss what the uptrend in China’s steel production tells us about the country’s economy.