A US-China Pact Would Boost Commodities, Citi Says

Recovery in raw materials should persist if an expected end to the trade tiff comes.

Look for a Sino-American agreement to end the trade war, which should further benefit commodities, Citigroup says in a report.

The US and China, which have the first and second biggest economies on earth, are “on course” to strike a deal by the end of the second quarter, the Citi report said, according to Bloomberg News.

The trade dispute and its attendant tariffs sent commodities tumbling last year, and word that a rapprochement may occur has led to a modest recovery in 2019. The commodity comeback is not solely the result of a pending US-China deal: Higher oil prices, fed by the Organization of the Petroleum Exporting Countries’ production cutback, has contributed to the commodity resurgence.

Citi forecast that Brent crude, the international benchmark, would rise to $78 per barrel by mid-year. It now is at $69.

“Partly as agreed during the trade talks, China is expected to boost purchases of energy and agricultural products from the US in the months and years ahead,” the report opined.

In addition, Bloomberg reported, Citi believes that the US dollar, which has been high lately, will weaken over the next 12 months. As most commodities are priced in dollars, that should further feed demand for suddenly cheaper commodities.

Citi had a fairly upbeat outlook for global economic growth, which it put at 2.8% for 2019 and 2.9% for 2020.

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