Financial markets have been waiting in anticipation to see what the outcome is of the much-vaunted US-China trade talks in London. The US delegation has made no secret of the fact that they want China to free-up US access to critical minerals (which is crucial for manufacturing sectors such as tech and automotive), but the question has been – what would the US have to give up in return? US export controls over semiconductors could be loosened as a way of coercing China to re-supply the US manufacturing sector with critical minerals.
In such a scenario, both sides could claim to have achieved a win because each would be regaining a key ingredient for their respective economic growth. However, that could be easier said than done. That’s because these trade talks are complicated by the fact that both countries are striving to gain the upper hand economically as we progress into the second quarter of the 21st century. As such, the tendency would be to maintain the strategic economic and national security advantage and that each currently holds, which is critical minerals supply in the case of China, and advanced semiconductors with regards to the US.
The US and China did today announce that they have reached a framework to achieve the Geneva Consensus. So, there does look to be a path where the China gives the US access to rare earth materials and magnets, and the US could then return the favour by loosening semiconductor export restrictions (subject to approval by both Presidents Trump and Xi).
Whilst we don’t have an actual deal yet, we do have something that could be classed as progress, which combined with the constructive post-meeting rhetoric from both sides may be enough to keep tariff worries at bay for the time being. But if a stalemate were to occur now, or if Trump takes to social media to start lambasting China’s trade practices again anytime soon, risk assets may start to get the shakes again.
Gold drifted higher on the latest headlines from London as traders assessed the post-meeting messaging from US and China officials. Early in Asian trading hours on Wednesday, gold was trading at $3330, ahead of support at $3304 and $3280, with resistance waiting at $3350 and $3375. The lack of a concrete US-China deal at this stage was the main reason for gold’s initial move higher, however gold’s upside momentum could be curtailed if a deal regarding critical minerals and advanced semiconductors remains on track.
Oil eased on Wednesday morning after the outcome of the talks in London. US crude was seen trading at $63.70, with support at $63.35 and $62.80. Resistance now waits at $64.90. If markets get over some of the initial disappointment from the London US-China talks, there is scope for crude to recover its daily losses however increased supply from OPEC+ remains a barrier on the upside.
Looking ahead, US inflation figures will be closely watched this week for any signs that tariff uncertainty has resulted in higher prices. US CPI data is due Wednesday, with monthly core inflation and the headline CPI rate expected to have nudged higher. This will be followed by PPI data on Thursday where we will get a read on how prices are performing at the factory gate.
