Watch Trade Truce's Impact on Price Action

Posted on Friday, December 7, 2018 at 9:00 AM

Last weekend Argentina hosted the G20 summit, which comprised 20 leaders from around the globe. There were three agenda priorities: the future of work, infrastructure for development and a sustainable food future. Trade and tariffs may not have been listed as priorities, but they certainly were.

When the commodity markets opened Sunday night there were huge gaps in price from Friday’s close to the open. Some markets saw big moves up and others down. Now there was no way to predict the outcome or impact this summit would have. But we did learn a lot about the effects trade between China and the U.S. will have on many commodities. Talk of fair trade sent ripples around the globe. Though we may not have access to research teams, we can get a better understanding of the fundamentals that are driving economies and trade by tracking price action at critical moments.

The most recent critical moment occurred Sunday evening (12/2/2018) when the futures markets opened. What we learned that night…

Stocks here and abroad took the “fair trade” news very well, thus opening sharply higher. The U.S. dollar fell against the currencies of our continental trade partners, the Mexican peso and Canadian dollar. Interest rate futures weakened while precious metals and crude oil prices rose. Natural gas declined while soybeans, corn and wheat opened acutely higher. There was little or no impact on livestock. Cotton was the only soft commodity that rose sharply.

So, if fair trade agreements occur, we have a good idea of the likely direction for many commodity sectors and currencies. If a pact cannot be negotiated, the rolls in price movement should reverse. By late Monday many of the markets that rose on trade talk reversed and moved sharply lower when it was reported the trade agreement may be fictional. Thus, the markets that fell rebounded.

The point is to monitor price action after a major event. Focus on the futures from each of these sectors to get a handle on economic impact and trade relations: equity index, interest rates, precious metal, foreign exchange, energy and grains.

John Seguin
Senior Futures Instructor
Market Taker Mentoring, Inc.

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