A sharp rally in palladium has led gains in other metals markets. Above, the open outcry pit at the London Metal Exchange. Photo: Luke MacGregor/Bloomberg News
A runaway rally in the silvery-white metal palladium is revving up investor optimism for global growth.
Palladium, used in automobile converters that make toxic emissions less harmful, has surged 25% since mid-August on softer-than-expected tariffs from China and the U.S., as well as signals that the Trump administration wants to compromise on trade. Prices are now at their highest level in nearly seven months.
Some investors look at palladium as an indicator for car demand and sentiment. Its rapid increase and signs that the Chinese government wants to spur domestic growth have led a rally in other metals markets. On Friday, nickel rose nearly 5% on the London Metal Exchange, and copper surged 4.3% to cap off its best week in nearly two years.
Palladium is “a small market, but sometimes these small markets can lead in terms of sentiment,” said Tai Wong, head of metals trading at BMO Capital Markets.
Investors look at industrial metals—widely used in manufacturing and construction—broadly to gauge growth world-wide. A monthslong price slide in these markets had eroded investor confidence, pushing money managers into U.S. assets throughout the year.
Yet recently, some analysts appear much more confident that a full-blown trade war and slowdown in China won’t materialize. Japan’s Nikkei Stock Average just had its best two-week stretch since July 2016, and the Shanghai Composite logged its best week in 30 months. The Stoxx Europe 600 posted its largest one-week advance since March.
Additionally, a sharp climb in new-car registrations in the European Union during July and August boosted palladium prices, Commerzbank analysts said in a recent note to clients.
Some traders expect metals prices to remain volatile as trade discussions continue and more economic data is released. China scotched trade talks with the U.S. that were planned for the coming days, The Wall Street Journal reported over the weekend.
But a continued metals rally could have investors feeling rosier.
“The mood certainly has shifted,” Mr. Wong said.
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Write to Amrith Ramkumar at [email protected]