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“Mining stocks have taken a step back following disappointing manufacturing figures from China as the trade war with the US starts to bite,” says Russ Mould, Investment Director, AJ Bell.
“The official purchasing managers’ index for China’s manufacturing sector stalled at 50 in November, down from 50.2 in October, according to data from the National Bureau of Statistics. A reading above 50 indicates expansion and a reading below 50 indicates contraction. “Shares in FTSE 100 miners Antofagasta, Anglo American and Glencore were all down between 1.5% and 2% on Friday as sentiment soured towards the resources sector which is heavily linked to Chinese economic activity.
“Various parts of the commodities sector have been flashing warning signs this year amid concerns about economic growth in China and other parts of the world.
“The price of copper, widely considered to be an economic bellwether, has fallen by 14% this year. More recently, iron ore prices have fallen by approximately 14% over the past two weeks and steel prices have been even weaker in the run-up to this weekend’s G20 summit in Argentina.
“Sir Humphrey Appleby, the Civil Service smoothie from the BBC’s political comedy Yes, Minister, once noted to his boss Jim Hacker that communiqués from major foreign summits were always written in advance of the event because there would not be enough time to do it once the meetings had finished.
“As such, investors should perhaps not get their hopes up too much that the Presidents of America and China, Donald Trump and Xi Jinping, are going to quickly resolve their trade differences at the G20.
“Yet there are three good reasons why stock and bond markets will be looking for some signs that America may not push through an increase in tariffs from 10% to 25% on the $250 billion of Chinese goods already targeted for these levies and look to slap taxes on a further $267 billion of Chinese products.
“First, history suggests that no-one really wins a trade war, with America’s introduction of the Smoot-Hawley Act in 1930 a good example of this, as the retaliation it provoked from Europe, hit global trade and an already-difficult economic (and financial market) environment was made substantially worse than it may have been otherwise.
“Second, tariffs and protectionism are inherently inflationary as the result is higher prices for consumers. That could oblige central banks to increase interest rates faster than perhaps they would otherwise.
“Finally, if President Trump does manage to wipe out America’s trade deficit, then it seems logical to expect an increase in the value of the dollar, as fewer greenbacks are exchanged for imported goods and supply of the US currency is held in check. And, rightly or wrongly, a bouncy buck is often seen as a negative for emerging markets and (dollar-priced) commodities in particular.”
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