Tariffs are not good news for commodity prices

President Trump’s decision to ratchet up the pressure on China by raising trade tariffs weighed heavily on most commodity prices this week. However, market sentiment improved a little on Friday as it became clear that goods already in transit (as of the 10th May) would be exempt from the new tariffs and that negotiations had not broken down completely. The prices of metals used heavily in the electronics sector and US agricultural products look most vulnerable to an escalation in the tit-for-tat tariff war. Turning to next week, any developments in the US-China trade dispute would probably determine the direction of commodity prices. Meanwhile, on the data front, China’s April activity and fixed investment data are scheduled for release on Wednesday. We think that both indicators dropped back last month, which could lead to further falls in the prices of industrial metals and energy commodities.