To The Moon

Following the conclusion of the China-US summit in Busan, South Korea, the trade war between the two countries has effectively been put on pause, providing a "reassuring measure" for the global economy. The 24% retaliatory tariffs have been suspended for one year. This one-year suspension is significant because it coincides with the upcoming US midterm elections, and there remains considerable uncertainty whether the Republican Party, led by Trump, will maintain control over both chambers of Congress, which will directly impact the trajectory of US trade negotiations. From the current perspective, at least for one year the market's worries about China-US trade frictions can greatly ease. With the exception of precious metals, this is generally positive news for other asset classes.

The success of the negotiations stemmed from mutually beneficial concessions from both sides. For the US, it is urgent to have China purchase American agricultural products to support the Republican Party's key voter base—the agricultural states. China itself also faces a significant soybean deficit, and resuming US soybean purchases greatly aids the Republicans. Since the announcement, US soybean prices have risen about 10% from their bottom. Moreover, this period coincides with the US soybean harvest season, so Chinese procurement helps reduce US farm inventories, leading to minimal fluctuation in soybean prices in the market.

Can US soybean prices continue to rise?

Although US soybean prices have risen 10% from their lows, it is not a large increase considering the high cultivation costs. Current prices have only just returned to around the break-even cost level. Hence, China's renewed buying is a long-term positive for US soybeans. However, since it is not the planting season and no unusual weather events have occurred, overall inventory levels have not dropped, which greatly limits the potential for a further short-term price increase. Technically, after breaking through the 20-month moving average, this moving average now acts as a strong support price, approximately near 1050 cents, which aligns with the cost of production. Without weather disruption, the short-term upside price target is around 1250 cents (reflecting 2024 inventory cost). This price trend is expected to last about 3 to 4 months. When South American soybeans enter the market, prices are likely to fall sharply. Market participants should be mindful of trading rhythm and adjust targets if significant weather changes impact production. Overall, 1250 cents is a crucial price level for US soybeans, and there is still room for movement upwards worth watching.

With the easing of China-US trade tensions, caution is warranted for precious metals prices.

Precious metals prices have risen rapidly this year, predominantly driven by geopolitical tensions and expectations of Federal Reserve interest rate cuts. Currently, progress has been made on a ceasefire agreement in Gaza, and the Federal Reserve's plans for rate cuts are not aggressive. Additionally, the one-year easing of China-US trade tensions has dampened prices across precious metals. Previously it was noted that after gold prices fell below the 5-day moving average, even if there is no steep drop, a prolonged consolidation period is expected. Therefore, those optimistic about precious metals should be patient and wait for the next opportunity rather than being overly aggressive.

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