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Paragon Commentary

Futures File: China, Shutdown & Metals

Jan 04, 2019

Chinese Pain, U.S. Gain?

China’s economy is showing signs of trouble, eliciting mixed reactions from Americans.

Typically, Chinese economic woes are a bad sign for U.S. companies, as China is a major buyer of U.S. goods like airplanes, cars, electronics, medical supplies, and agricultural products.

However, China’s current weakness may be a good thing for many Americans, as Chinese economic problems could be a sign that the trade war is damaging them more than the United States, which could bring them to the bargaining table.

New negotiations are scheduled for next week, which has U.S. companies optimistic about the future of a U.S.-China trade deal. This was especially true for soybean exporters, who are reporting renewed Chinese demand for the crop. Since Christmas, March soybean futures exploded from a one-month low to trade Friday for $9.21 per bushel.

 

Gov’t Shutdown Leaves Markets in the Dark

With the partial U.S. government shutdown stretching into its second week, more people are feeling the pain of the closure.

Worst hit are over 800,000 federal employees who are going without a paycheck, which could create a spiral of economic woes throughout the country as they cut back on spending or miss bill payments due to lack of income.

Additionally, many government functions that are deemed “nonessential” are being left undone, which includes much of the U.S. Commerce Department, NASA, the IRS, and the National Park Service.

Furthermore, lack of funding has forced the U.S. Department of Agriculture to stop its regular production of reports on commodity markets, which is leaving farmers, ranchers, and food production companies in the dark.

 

Metals’ Meteoric Rise

Gold and silver are racing higher, vying for the best comeback story of 2019.

Both markets bottomed out in November of last year and reached a six-month high on Friday. Gold exploded from $1,196 per ounce to trade over $1,300 on Friday, while silver jumped from a $13.86 low to $15.95 on Friday morning.

Precious metals are gaining favor as other investments look less attractive. As traders expect the Federal Reserve to keep interest rates steady, government bonds will pay out less. Meanwhile, a tumbling stock market and real estate prices that feel frothy have spooked many investors from those markets as well.

However, all of this reversed course on Friday morning after a strong U.S. jobs report sparked a massive stock market rally and selloff in gold, a sign that markets could continue to be as volatile in 2019 as they were last year.

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