Spreadex Market Update

Markets sink as China’s rare earth warning drags trade war back to the fore



With investors flocking to US 10-year Treasury bonds on Tuesday night – yields are at a 20-month low – the European markets resumed their fearful performance on Wednesday.

The catalyst for the latest round of losses was a thinly veiled threat from China over its willingness to throw around its rare earth weight in its battle with the US. Following comments from a National Development and Reform Commission official, Global Times editor-in-chief Hu Xijin tweeted that based on what he knows, Beijing is ‘seriously considering restricting rare earth exports to the US.’ Given that the materials are used in everything from iPhones to missile guidance systems to electric cars, and that China’s mines account for around 70% of the globe’s output, the country may have found its not-so-secret weapon in the trade war.

The Dow Jones already had a rough end to Tuesday night, and is now facing a further 0.5% decline this afternoon, one that’d force it to a 3 and a half-month low of 25200. This helped inform the European open: the FTSE lost 0.9%, sinking back to 7200 in the process, while the DAX and CAC shed around 1% apiece, leaving the German and French indices just above 11900 and 5200 respectively.

Brexit’s war of attrition with the pound continued on Wednesday. Still without a way forwards, and with the Tory leadership circus set to swallow up valuable political oxygen in the next month or so, cable dipped another 0.1%, returning to its near 5-month lows. Against the euro, meanwhile, sterling was flat at €1.133 – as a comparison point, on May 3rd it was trading at €1.1775.

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