Mining stocks and sector-related exchange traded funds strengthened Monday as a trade war cease fire between the U.S. and China fueled hopes that the second biggest economy in the world could recover and pick up on demand for raw materials.
On Monday, the Global X Copper Miners ETF (NYSEARCA: COPX) surged 4.0%, VanEck Vectors Rare Earth/Strategic Metals ETF (REMX) advanced 3.1% and iShares MSCI Global Metals & Mining Producers ETF (NYSEArca: PICK) increased 3.4%. Both COPX and REMX also broke above their short-term trend line at the 50-day simple moving average as well.
Industrial metals and related mining companies rebounded on hopes that the U.S. and China would put aside their trade spat. China, the second largest world economy, is also the world’s biggest consumer of commodities, accounting for 50% of global copper demand, so the lingering concerns over tariffs have cut into the consumption of metals used in manufacturing and construction in recent months, the Wall Street Journal reports.
“The market was bound to respond warmly to the seeming cooling in trade aggression,” Vivienne Lloyd, senior analyst at Macquarie, told the WSJ. “The talks were slightly more positive than we’d expected, but whether there’s more volatility expected will depend on any further macroeconomic developments, including the movement of the dollar.”
Over the weekend, President Donald Trump revealed plans to postpone tariff hikes on $200 billion in Chinese goods and that the two countries are entering negotiations on other critical issues, which have helped assuage market concerns and lifted the outlook on an unimpeded global growth.
Nevertheless, we aren’t totally out of the woods yet, and investors should keep in mind that it will take some time before the U.S. and China can reach a consensus.
Analysts at RBC Capital warn of “significant gaps between what the U.S. thinks China has agreed and what China thinks the U.S. has agreed… A lot will depend on developments in the next 90 days, but given the U.S. and China are on different pages, we don’t think the optimism can last,” according to the Financial Times.
For more information on the miners segment, visit our metals & mining category.