In Europe, all is quiet as the last week in August draws to a close.
The Germans are settling back into their deckchairs secure in the knowledge that their PMI numbers are as good as ever. A slight hiccup in that narrative came with new Ifo numbers on Thursday, which showed a delayed negative reaction the Brexit vote.
But on the whole German policymakers can afford to be relatively pleased with their performance in the year to date, even if it is still unclear if the great refugee gamble will pay off, or backfire big time.
Mario Draghi has steered the European Central Bank out of troubled waters and, with the Brexit vote done and dusted, the crisis in Italian banks yesterday’s news, and other countries in the EU drawing closer into the project, rather than away from it, all is temporarily well. For good or ill, British exceptionalism may not end up having much of an impact on Europe.
Meanwhile, in the US, serious policy-makers are hunkering down in Jackson Hole, trying to work out what to do with the US dollar - to the extent that it really is in their power.
Perhaps more significant in the immediate term, Mrs Clinton’s polling numbers look good and her comments on US pharma pricing legislation are able to move markets significantly. That’s a sure sign that the smart money is beginning to believe that a second, but different, Clinton presidency is now a very real possibility.
The smart money has been wrong before of course, as it was in the Brexit vote, and it was probably in this context that Donald Trump made the cryptic remark last week that he was going “to do a Brexit.”
As if to reinforce that thought, Nigel Farage has turned up as a speaker at Trump rallies. But although Farage may boost Trump’s appeal to his own people, as the British electorate know, he’s unlikely to engender broad-based support.
So, if the smart money is right and Clinton wins, it will be economics and the dollar, rather than political volatility and economic uncertainty that the Americans will be plugging into the global economy and the setting of commodity prices during the fourth quarter.
In China, the situation is a little different. It’s the only one of the major global economic blocks where a command economy operates, and where government thinking, inasmuch as it can be discerned, is likely to feed directly into the setting of commodity supply-demand dynamics.
In particular, there has been increasing noise about the steel market in recent weeks. Chinese steel is of interest for two different reasons. The first is that Chinese steel consumption has historically been regarded as a proxy indicator of Chinese growth, since steel goes into manufacturing and construction, and is essential in the undertaking of major infrastructure projects.
But the other reason why steel consumption is closely watched is because it can also serve as an indicator for iron ore and coal demand, both of which are heavily used in the manufacture of steel. Minor metals like tungsten, titanium, and vanadium can also be affected.
Thus commentary by Citi earlier this week: “After a credit-fuelled first half transitioned into a government intervention-supported second half for Chinese steel, we have upgrade second half 2016 iron ore to US$55 per tonne, previously US$47 per tonne, and 2017 to US$45 per tonne, previously US$42 per tonne.”
More medium term, Citi is less bullish. “We expect the rally to run out of puff as long product demand tumbles further in the fourth quarter with steel demand expected to decline by 0.7% in 2017 at the same time as low-cost iron ore supply continues to expand. We expect prices to fall further in 2018 and 2019.”
Citi says that the underlying current Chinese steel price rally is “unsustainable” as “key economic indicators have seen growth peaking around the second quarter.”
What this means for miners broadly depends on what type of miner you are. A Clinton victory is likely to ease the upward pressure on gold somewhat, as will some meaningful action from the Fed about interest rates. The Brexit effect is already fading and the perpetual European fudge continues. If Europe can deliver a few crisis-free months, that should also dampen down demand for gold.
As for other commodities, Chinese growth is no longer the inspirational economic fix-all it once was. You wouldn’t really want to be in iron ore at the moment, unless you were one of the super-majors.
But you might want to be in copper, as commentary from Glencore highlighted this week. “Copper underperformed the base metals complex over the first half of the year,” said Glencore, “trapped between the forces of speculative bearish Chinese macroeconomic sentiment and institutional fund flows and strong physical Chinese demand on the other.”
Or to put it in simpler terms: sentiment towards China is negative, but demand from China is strong.