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What to watch as commodities rout takes hold

4 min read

It’s getting ugly out there. Commodities are taking a hit as investors fret about the fall-out from the global trade war, with the Group of 20 (G-20) the latest to weigh in with a warning. Against that backdrop, this week is one of the busiest of the quarter as earnings pour in. Big Oil heads the list, with Royal Dutch Shell, Exxon Mobil and Chevron among those reporting.

With base metals under pressure and gold offering no haven, watch for outlooks from Freeport-McMoRan, Anglo American, Barrick Gold and Newmont Mining, as well as mining-equipment makers. Rounding out the picture, we will see how crops are doing on both sides of the Atlantic, with a check on conditions in Europe and wheat tours in Canada and North Dakota.

Before getting stuck in, it is worth flagging where signals may come from about the next steps in the trade showdown, apart of course from the twittersphere. This week the World Trade Organisation (WTO) general council meets on the US-China standoff; North American Free Trade Agreement (Nafta) negotiators try to make headway in Washington; and leaders from the Brics (Brazil, Russia, India, China and SA) nations get together in Johannesburg.

It’s a gusher

After driving costs down to survive a plunge in the crude price that started in 2014, the oil industry is now riding a rebound towards some of the fattest profit margins they have ever seen. The only question is: what are they going to do with the extra money? Some of the answers will start to come in on Thursday and Friday, when in addition to the quarterly figures from Shell, Exxon and Chevron, Total and ConocoPhillips are set to report their numbers.

Investors are pushing for share buybacks after enduring belt-tightening measures used to survive the downturn that diluted their holdings. But even after buying back shares and paying dividends, a group of nine integrated oil companies will probably have an extra $8bn in cash, according to Royal Bank of Canada. That may mean majors are now scouring the globe for more barrels, marking the end of austerity and a return to bigger spending.

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