Trade Hopes Lift Copper and Oil

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Prices of copper and oil are climbing alongside stocks, highlighting investors’ hopes that a possible U.S.-China trade deal could boost global growth.

Front-month copper futures have gained 1.7% so far this week, while U.S. oil prices have risen 1.8%, boosted by a recent spate of unexpectedly sturdy U.S. economic data and reports that officials in the world’s two largest economies are considering rolling back some tariffs to help clinch a partial trade agreement. The gains have helped lift the Bloomberg Commodity Index 0.6% in that time.

Negotiations between the world’s two largest economies have seesawed for months, sparking swings in commodity prices. Investors are now wagering that a breakthrough between the two countries will help lift growth and demand for raw materials and energy.

The latest boost came Tuesday, with reports that efforts to reach a trade agreement between the U.S. and China would include a rollback of tariffs. A so-called stage-one deal would also include Chinese purchases of U.S. farm goods, rules to deter currency manipulation and some provisions to protect intellectual property and open up Chinese industries to U.S. firms, officials have said.

That followed comments by U.S. Commerce Secretary Wilbur Ross over the weekend that the two countries were making “good progress” and that licenses for U.S. companies to do business with Chinese telecom giant Huawei Technologies would be coming ”very shortly.”

Those developments added to recent optimism that trade detente could send copper prices higher still. China is one of the world’s largest copper consumers and accounts for about half of global copper demand.

Copper futures for November delivery posted a third-consecutive session of gains Tuesday, rising 1% to their highest settle since late July. Hedge funds and other speculative investors are the least bearish they have been on copper since April, according to data from the U.S. Commodity Futures Trading Commission.

“Investors are looking at the U.S. and China and saying, ‘Maybe the worst-case scenario isn’t going to come to pass anymore,’” said Tai Wong, head of base- and precious-metals derivatives trading at Bank of Montreal.

A more positive view on the outcome of the U.S.-China trade talks is also boosting the investor outlook on oil.

Net bets on rising U.S. oil prices hit a nine-month low in mid-October on fears of softening demand amid strong production from the U.S., but have risen in recent weeks.

U.S. crude futures climbed for a third straight session on Tuesday, rising 1.2% to $57.23 a barrel, while Brent, the global gauge of prices, gained 1.3% to settle at $62.96 a barrel.

A lot of investors think the market will be oversupplied next year, said Michael Tran, energy strategist at RBC Capital Markets. “That’s why the bulls in the market are hanging their hat on a trade-war resolution—so the economic backdrop and demand can improve.”

The rise of crude, combined with a rally in natural-gas prices bolstered by forecasts for cold November weather, is helping to boost shares of beaten-down energy producers. Cimarex Energy Co. , Noble Energy Inc. and Pioneer Natural Resources Co. have all gained more than 4.5% so far this week.

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