To The Moon

As the end of the month approaches and the November 1 deadline for the US to impose significant tariffs on China looms, the US is increasingly eager to engage in trade talks with China. At this stage, continuing to raise tariffs would harm the US more than benefit it, thus giving China the upper hand in negotiations. Starting this week, information and outcomes from both sides' negotiations will gradually emerge. While a comprehensive deal is unlikely in one round, some progress is expected, which will help revive global trade.

China-US Talks to Boost Commodity Prices

The tariff policies previously caused significant disruption in global trade and economics. As negotiations between these two major economies advance, market reactions to tariffs have become less reactive. Although tariff issues once sparked inflation concerns, the market more feared a large-scale economic recession caused by tariffs. Consequently, despite strong inflation expectations, these were not reflected in commodity prices but rather in rising precious metal prices. Should the trade environment between China and the US ease and normalize post-negotiations, fears of recession would diminish considerably. This would shift market attention back to using commodities to hedge against inflation. Compared to April, precious metal prices have diverged sharply, representing a significant difference in cost-effectiveness for inflation hedging. It is thus timely to gradually direct focus from precious metals towards other commodities.

A Key Focus in the Negotiations: Agricultural Trade

One prominent focus of the talks is undoubtedly agricultural trade. US farmers have long suffered due to the absence of Chinese buyers. The US must prioritize farm interests in these negotiations, as ignoring them could jeopardize the upcoming midterm elections. The extent of the trade discussions will be evident in whether China resumes purchasing US soybeans, and in what volume. Resumption of soybean purchases would indicate the two countries are on a path toward trade normalization.

The recent rebound in US soybeans and soybean meal prices has already reflected market optimism about improved China-US talks. Once confirmed, US soybeans are expected to break through two years of resistance at the 20-month moving average, signaling an end to the bearish market. This rally could last until March or April next year, possibly influenced by weather conditions affecting soybean planting in South America. Overall, the worst period for US agricultural exports appears to be over, resting on China’s role as a significant buyer.

Crude Oil Price Developments

Crude oil prices also warrant attention. Despite OPEC+ production increases pushing prices down to previous lows, subsequent plans by former President Trump to further sanction Russian oil exports led to a sharp price rebound. This indicates that oil prices dropping significantly below $64 per barrel (Trump’s targeted price) is unlikely. The possibility of intensified sanctions or regional conflicts still exists. Furthermore, a relatively normalized China-US trade relationship would boost market confidence in economic and trade prospects, driving oil demand higher. Thus, substantial declines in oil prices lack a solid basis, and overly bearish views on oil prices should be avoided.

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