Macquarie outlines the commodities likely to outperform no matter how the trade wars play out

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There’s no shortage of uncertainty for investors to navigate at present, particularly when it comes to global trade.

Will tensions between the United States and other major trading partners erupt into a full-blown trade war, or will that scenario be averted?

And how will the Chinese economy fare, particularly at a time when officials are attempting to reduce leverage across its industrial sectors?

So much uncertainty, and speculation, but no clear answers as yet.

For commodity investors, in particular, this presents a challenge given how crucial global growth is for demand, and prices.

However, while they can’t tell you how it will all play out, commodity strategists at Macquarie Bank have a few ideas on what commodities are likely to benefit most whenever the uncertainty lifts.

Here are the scenarios Macquarie has looked at, what commodities you should buy as well as the justification for the view.

Trade war intensifies so China stimulates

Buy: metals, iron ore, steel and coal

China attempts to offset trade war risk by scaling back deleveraging policy + delivering targeted tax cuts + investing directly in property/infrastructure sectors, to boost domestic growth; steel-/copper intensity-of-use + imported raw materials demand lift.

Trade resolution arrives

Buy: metals but sell or hold steel and iron ore

Any resolution on China-US trade terms (promises clarity, resumption of growth) to prompt reversal of recent price performances; metals offer relatively greater upside than other commodities, given scale of group’s sell-off since mid-June.

Trade uncertainty persists in the short-term

Buy: bulk commodities but sell or avoid metals

Given on-going uncertainty with US trade policy + short-term downside/high volatility risk with metals, we seek bulks (iron ore, coals, manganese ore), as variously China-backed (robust demand; shrinking local supply, on reforms), offering stability/’defensive’ for investors.

Trade war becomes entrenched and inflation lifts

Buy: gold

Gold’s demand/price has struggled recently, despite uncertainty/anxiety in global trade; for now it seems, investors are sticking with rising USD/yield story, believing that US trade clout + on-going economic growth there offers support/upside for US$-assets; but any evidence of waning US growth/rising inflation, will be supportive for gold.

Right now, it appears the third scenario — trade uncertainty persisting in the short-term — appears to be playing out.

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