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Bloomberg has been reporting that China continues to buy American soybeans despite worsening rhetoric from President Donald Trump over Hong Kong.

Lead paragraphs

State-run and private buyers have purchased at least 10 cargoes this month, with three being sold overnight, according to people familiar with the matter, who asked not to be named because the deals are private.

China will need the supply and U.S. prices are attractive for cargoes delivered after the harvest.

The deals offer respite to markets concerned about the return of trade disruptions as the countries have been exchanging blows over everything from the origins of the coronavirus to new security legislation in Hong Kong. The chief financial officer of Archer-Daniels-Midland Co., one of the world’s top agriculture commodity traders, said the phase one deal is still “on track.”

“There was a recent speculation that maybe China kind of ordered their state-run enterprises or stop buying, well, the reality of matters, we — the same week, we’ve been actually receiving orders in terms of shipping products over to China,” CFO Ray Young said Wednesday at a Stifel virtual conference. “So our counsel to people is that let’s look at the facts, and let’s avoid the speculation.”

Market implications

This all sounds good on the surface of things and markets are running with it.

The US stock market has taken off to the moon, so did the Aussie dollar which has been a proxy to the trade wars since they began under US President Donald Trump’s administration in 2018. 

The S&P 500 is back to pre-crisis levels in the 3,190s which made a run to a 3,223 the high today. The Aussie vs the greenback trades at 0.6995 and touched a fresh high in the US session of 0.7704. 

“When we talk to different officials within both sides of the governments, right, whether it be the US side and the China side, clearly, there’s a commitment towards making sure that we honour the phase one part of the trade agreement, particularly the agricultural commitments,” Ray Young said.

“My viewpoint is that US-China trade, we still believe this is on track,” the Bloomberg article wrote and in addition, published final comments from Young:

“There’s still a need for China to bring in agricultural products,” Young said. “Their economy is recovering, right? They do need to bring in more soybeans.”

He added that the country would also need meat as its pork herd is still recovering from African swine fever, a disease that decimated the Chinese herd.

Anti China rhetoric is a lightning conductor

However, as Trump seeks to rally support for his presidency race and elections later this year, China served as a huge part of his campaign last time around and he will want to secure those votes again this time around.

The virus blame would be a recipe for a disaster should Trump continue on the tact of calling out China as the culprit.

“Anti China rhetoric is a lightning conductor”, analysts at Rabobank said. 

Trump seems to be using anti-China rhetoric as a diversion from his domestic problems. 

Trump has lost much needed popularity in the polls due to his handling of the corona crisis, the rapidly worsening economy and his threat to deploy the military to subdue recent demonstrations and social unrest.

However, what is also noted by the analysts, Trump is indeed not alone in this stance, as his Democratic opponent Joe Biden is also planning to act against China, albeit in cooperation with Europe.

When markets get a second wave of either coronavirus or trade wars, it will be game over for the recovery and a flight to the USD again, after all, they are relatively cheap these days. Gold will also recoup some of the safe-haven flow from speculators. However, committed bulls could be forced to liquidate gold positions to fund margin calls elsewhere.

  • Gold Price Analysis: XAU/USD fades upside momentum near multi-day top above $1,700




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