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Economy ME
a day ago
- Business
- Economy ME
Critical week ahead for stocks: What investors need to know
In the current whirlwind of economic changes, investors are grappling with a host of uncertainties as they navigate crucial indicators that could shape market dynamics. With the U.S. Federal Reserve 's next moves hanging in the balance, the potential for interest rate cuts looms large. The upcoming jobs report is set to provide insights into the labor market's health, while ongoing trade negotiations continue to influence sentiments across various sectors. As we anticipate these developments, it's clear that understanding the interplay of economic factors is vital for making informed investment decisions. Whether it's the impact of inflation data, shifts in consumer spending, or the broader implications of tariff policies, the stakes have never been higher. Fed's stance and market reactions With the Federal Reserve's decisions closely watched by investors, the upcoming meetings could significantly influence market dynamics. Charu Chanana, chief investment strategist, Saxo Bank, remarked, 'While a July cut is unlikely, the decision is unlikely to be unanimous.' This suggests that dissent among Federal Reserve members, particularly from influential figures like Waller or Bowman, could sway market expectations towards a possible rate cut in September. Such a shift would likely spark a rally in bonds and rate-sensitive equities, while exerting downward pressure on the U.S. dollar. The anticipation around the Core Personal Consumption Expenditures (PCE) index also plays a crucial role. Expected to rise by 0.3 percent month-over-month, any downside surprise would reinforce the disinflation narrative, which could further support risk assets. 'A softer-than-expected monthly reading would push the Fed closer to easing, especially if accompanied by weaker labor market signals,' Chanana emphasizes. Labor market insights The upcoming jobs report is another critical indicator. Projections indicate job gains of approximately 107,000 for July, a decline from June's 147,000. This brings the job growth closer to the breakeven pace of about 80,000 necessary to maintain a stable unemployment rate. Should the report reveal job gains below 100,000, particularly with an anticipated rise in the unemployment rate to 4.2 percent, it could signal a slowdown in momentum. Chanana states, 'Any signs of wage softness could ease inflation fears further.' This observation underscores the potential for a weak overall report to amplify expectations for Federal Reserve rate cuts, supporting bonds while negatively impacting cyclicals and financials. However, sectors like technology and defensives may fare better under such conditions. Trade uncertainties and their implications The August 1 tariff deadline marks a significant milestone in the ongoing trade saga. Countries yet to secure trade agreements with the U.S. face new tariffs, creating a precarious situation. For those with agreements in principle, such as the EU and Japan, the focus will shift to the interpretation and implementation of these deals. Chanana asserts, 'This round of deals may offer short-term clarity and avoid immediate escalation, but it doesn't resolve the broader structural imbalances.' In the context of U.S.-China negotiations, a 90-day extension of the current tariff pause is expected, which would maintain the fragile status quo. However, a confrontational tone could reignite fears of renewed tariffs, leading to a risk-off sentiment in the markets. U.S. exceptionalism and sector performance Interestingly, the narrative of U.S. exceptionalism is resurfacing. Chanana notes that 'U.S. assets are once again outperforming,' driven by stronger economic data and AI-driven tech momentum. Meanwhile, Europe is losing steam, not due to a fundamental collapse, but because of a shift from policy promises to actual implementation. This divergence could bolster U.S. markets while putting pressure on European equities. As lower yields ease financing conditions, sectors like small caps, REITs, and dividend payers are positioned to benefit from potential rate cuts. Chanana explains that 'if growth isn't a concern—as is the case now—growth stocks like tech can also extend gains.' This suggests a broadening of market participation, which could provide relief to underperforming sectors such as industrials and financials. Read more: Stock markets gain momentum as U.S. indices hit record highs amid mixed investor sentiment Earnings reports and market dynamics The upcoming earnings season will be crucial for assessing consumer strength and corporate resilience. Key reports from companies like Visa, Mastercard, and Booking Holdings will provide insights into spending trends, while reports from industrial giants like Boeing and Ford will shed light on global demand. However, the concentration of market leadership among a few megacap names raises concerns. Chanana warns that 'disappointment from one or two key players could unwind recent gains quickly.' With valuations stretched and macro tailwinds fading, investors will be keenly watching both results and guidance. Dollar and gold: Navigating volatility The medium-term downtrend in the U.S. dollar remains intact, driven by expectations of Fed easing and structural imbalances. Yet, Chanana highlights potential for a short-term reversal due to resilient U.S. data and relative weakness abroad. The dollar's recent strength is further supported by the newly imposed tariffs on the eurozone, which could dampen growth prospects. As for gold, it remains range-bound with critical technical levels to watch. Chanana states, 'A sustained break above the 50-day moving average would open the path toward retesting $3,400.' While short-term pressures exist, the long-term outlook for gold remains bullish, supported by persistent fiscal deficits and central bank buying.
Mid East Info
2 days ago
- Business
- Mid East Info
Make-or-break week for stocks: key questions investors are asking
Charu Chanana, Chief Investment Strategist, Saxo Bank Macro data and monetary policy Q: Will the Fed hint at a September rate cut? A: While a July cut is unlikely, the decision is unlikely to be unanimous. A dissent from key members such as Waller or Bowman could shift market expectations toward a September move. That would likely trigger a rally in bonds and rate-sensitive equities, while putting downward pressure on the USD. Q: How would the markets react if Core PCE surprised to the downside? A: Core PCE for June, due Thursday, is expected to rise 0.3% MoM (vs. 0.2% MoM in May) and hold steady at 2.7% YoY. However, a softer-than-expected monthly reading (say, 0.2% or below) would reinforce the disinflation narrative and support risk assets. A downside surprise could also push the Fed closer to easing, especially if accompanied by weaker labor market signals. Q: Will the jobs report on Friday signal cracks in the labor market? A: The July payrolls report is expected to show job gains of +107K, down from +147K in June. That would bring the data closer to the estimated breakeven pace of around +80K, the level needed to keep the unemployment rate stable. A print below 100K, especially if accompanied by a rise in the unemployment rate to 4.2% (as expected), would suggest momentum is slowing. Focus will also be on private payrolls, which were soft last month, and average hourly earnings, expected at 3.8% YoY (vs 3.7% prior). Any signs of wage softness could ease inflation fears further. A weak overall report would amplify Fed cut bets, support bonds, and hurt cyclicals and financials, though tech and defensives may hold up better. Q: What if the Fed stays on hold but July NFP on Friday is weak? Could Trump move towards firing Powell? A: While there's no immediate risk of Powell being fired, Trump is likely to continue undermining the Fed's autonomy and credibility through public jabs. His strategy appears aimed at creating a scapegoat if economic conditions weaken closer to the election. Markets are unlikely to price in direct intervention, but escalating rhetoric could increase policy uncertainty premiums—particularly in rate-sensitive sectors like financials and real estate. The dollar could also face episodic pressure if Fed independence comes under threat, diminishing its appeal as a safe-haven currency in risk-off conditions. Q: Which sectors benefit if rate cut pricing picks up? A: Small caps, REITs, dividend payers, and defensives like utilities and staples typically benefit first as lower yields ease financing conditions and boost income appeal. But if growth isn't a concern—as is the case now—growth stocks like tech can also extend gains, especially as falling real yields support elevated valuations. Rate cuts could also broaden market participation, bringing relief to underperforming sectors like industrials and financials. In this context, a Fed pivot could set the stage for the next leg higher in U.S. equities, by easing financial conditions without undermining the growth outlook. Trade & Tariffs Q: Does the August 1 tariff deadline bring an end to the trade uncertainty? A: August 1 marks the deadline for reciprocal tariffs under the new baseline trade regime. Countries that haven't secured trade agreements with the US face tariffs. For those with agreements in principle, like the EU and Japan, the focus now shifts to how the deals are interpreted and implemented—especially around required investments into the U.S. This round of deals may offer short-term clarity and avoid immediate escalation, but it doesn't resolve the broader structural imbalances. With higher baseline tariffs and vague investment commitments, the trade framework remains fragile. Markets could enjoy cyclical relief in the near term, but investors should prepare for ongoing volatility, particularly in sectors tied to global supply chains like autos, semiconductors, and capital goods. Positioning should reflect both the temporary calm and the deeper geopolitical realignment underway. Q: Will US-China talks avert a new tariff round? A: The ongoing talks are expected to result in a 90-day extension of the current tariff pause that expires August 12, which would avoid immediate escalation and maintain the fragile status quo. While no grand deal is expected, even a modest agreement would represent progress given how strained relations have been. A truce extension would calm markets and support China tech, semis, and global cyclicals. A confrontational tone or vague outcomes could reignite fears of renewed tariffs down the line, resulting in a risk-off sentiment. Q: Is the U.S. exceptionalism trade back? A: U.S. assets are once again outperforming, underpinned by stronger economic data, AI-driven tech momentum, and fiscal support. Meanwhile, Europe is losing steam – not due to a collapse in fundamentals, but because the focus is shifting from policy promises to actual implementation. European equities rallied strongly earlier this year on hopes of fiscal stimulus, improving manufacturing data, and a synchronized recovery. But with the ECB nearing the end of its rate cut cycle and fiscal delivery falling short, markets are beginning to reassess those optimistic assumptions. The recent U.S.-EU trade deal, which locks in higher tariffs for the bloc, has further darkened the outlook, especially for export-oriented sectors. Adding to the pressure, the euro's recent strength has started to weigh on eurozone corporate earnings, as it erodes the foreign-exchange competitiveness of European exporters and reduces the value of overseas revenue. With earnings growth already fragile, this currency effect could become a meaningful drag in the quarters ahead. In contrast, the U.S. could shift toward pro-growth policies in the second half, including potential tax cuts, deregulation, and a more accommodative Fed. If those materialize alongside strong earnings and resilient data, they could reinforce the narrative of U.S. exceptionalism just as Europe faces a tougher path forward. As per the charts above, additional price strength leading to an upside break may add further momentum to the rally, not necessarily due to price-friendly fundamentals, but first of all due to buying as wrong-footed longs scale back bearish bets. For the rally to become more sustainable, thereby signalling a low in the market following three years of weakness, the global production outlook needs to deteriorate further, so for now we view the rally as technically more than fundamentally driven. Earnings Q: Can Big Tech justify the scale of AI spending? A: The focus is shifting from whether AI capex is too high to whether it's translating into monetization and operational efficiency, and investors are starting to see early signs of both. Alphabet just raised its full-year capex forecast to $85 billion, citing strong demand for cloud and AI services. Google Cloud is now growing over 30% YoY, and executives noted that AI search results are being monetized at rates similar to traditional search, with AI overviews also driving more traffic. That helped reassure markets that AI spending is beginning to yield returns. Meta has previously raised capex guidance and shown that AI is improving ad performance and user engagement. Investors will look for more evidence of that in this week's results, especially given that costs are climbing as Meta builds out a new, dedicated AI team. The company will need to show that rising investment continues to translate into tangible business results to justify its elevated spending trajectory. Microsoft and Amazon could follow Alphabet's lead on increasing AI capex now that trade uncertainty is easing, but they will need to back it up with clear monetization pathways—whether through Copilot and enterprise AI tools at Microsoft, or shopping and productivity assistants like Rufus and Q at Amazon. Apple , meanwhile, may lag on visibility. Analysts don't expect a major AI update, but any hint that Apple Intelligence-enabled regions are seeing stronger product sales could be seen as a subtle validation of the theme. Q: What other names could help gauge AI and cloud infrastructure adoption? A: Outside the big names, investors will be watching: Qualcomm (Wed), Lam Research (Wed), KLA (Thu), Tokyo Electron (Thu) for signs of AI chip demand, semiconductor capex, and hyperscaler spending. Cloudflare (Thu), MicroStrategy (Thu), Roblox (Thu) for enterprise AI tools, cloud adoption, and platform engagement trends. Q: Beyond Big Tech, which earnings could offer a read on consumer strength? A: Several key names this week will offer direct insight into U.S. and global consumer resilience: Visa (Tue), Mastercard (Thu), and Booking Holdings (Tue) will shed light on spending trends in travel and services. HSBC (Wed), UBS (Wed), and Mastercard (Thu) could also comment on capital flows, lending trends, and regional divergence in economic performance. Procter & Gamble (Tue), Mondelez (Tue), and Starbucks (Tue) will give a read on pricing power vs. volume in staples and discretionary categories. Investors will be watching for any signs of consumer trade-down or margin pressure. Royal Caribbean (Tue) and UPS (Tue) will offer views into discretionary travel and e-commerce logistics, respectively. Q: Which industrial or capex-heavy firms could shed light on global demand? A: Key industrial and logistics names reporting this week include: Boeing (Tue), Airbus (Wed), Schneider Electric (Thu), and Trane Technologies (Wed) will help gauge backlogs, capex recovery, and global supply chain normalisation. Ford (Wed), BMW (Thu), and Mercedes-Benz (Thu) will be important to assess auto demand, EV rollout challenges, and pricing power. Q: What if earnings underwhelm in a narrow market? A: With equity leadership concentrated in a handful of megacap names, the risks are asymmetric. A few big misses—especially from tech giants—could trigger outsized market reactions, spark sector rotation, or even lead to a broader pullback. In a narrow market, there's little cushion. Disappointment from one or two key players could unwind recent gains quickly, especially if valuations are already stretched and macro tailwinds are fading. Investors will be watching both the results and the guidance closely. Others Q: Is the USD bear trend reversing? A: The medium-term downtrend in the dollar remains intact, anchored by expectations of Fed easing, a narrowing yield advantage, and long-term structural imbalances. However, crowded short positioning, resilient U.S. data, and relative weakness abroad suggest the potential for a short-term reversal. The recent US-EU trade deal, initially viewed as stabilizing, is now seen as a structural drag for the eurozone, raising tariff burdens and weighing on growth assumptions. With the euro making up nearly 60% of the DXY index, this underperformance is directly lifting the dollar. If U.S. data this week holds firm, and Fed rhetoric remains cautious, the dollar may continue to find support, even as the broader trend remains bearish. Q: When will gold break out of its range? A: Gold remains range-bound for now, consolidating between $3,300 and $3,430. The immediate technical hurdle is the 50-day moving average near $3,340. A sustained break above that level would open the path toward retesting $3,400, and a breakout beyond $3,430 could signal a renewed bull leg. On the downside, $3,300 remains key support—marking the lower bound of June's consolidation zone. Signs of easing global trade tensions and resilient U.S. economic data have lifted risk appetite and pressured gold, with some safe-haven flows rotating into equities and higher-yielding assets. At the same time, the potential for short-term U.S. dollar strength adds to the headwinds for gold, particularly in the near term. However, the medium- to long-term backdrop still supports the bull case. A dovish Fed pivot, renewed risks of geopolitical shocks, or a weaker dollar could revive upside momentum. And beneath the surface, structural tailwinds—including persistent fiscal deficits, central bank gold buying, and downward pressure on real yields—continue to provide a solid floor for gold, even as short-term volatility persists.
Mid East Info
22-07-2025
- Business
- Mid East Info
Six months of Trump 2.0: Chaotic policy shifts, resilient markets
Charu Chanana, Chief Investment Strategist, Saxo Bank In just six months since Donald Trump returned to the White House, markets have experienced a whirlwind of policy headlines, geopolitical recalibrations, and economic crosswinds. Echoing Lenin's famous words, there are decades where nothing happens, and weeks where decades happen. The first half of 2025 has seen the U.S. government adopt a more self-directed, assertive role on the world stage, rekindling protectionist rhetoric, floating ambitious tax and spending plans, and throwing policy support behind innovation and national security. Yet, markets have remained largely resilient. Equities have continued climbing, optimism around artificial intelligence has bolstered tech valuations, and volatility has remained subdued despite repeated threats of tariffs, tighter immigration rules, and political pressure on the Federal Reserve. Looking ahead, markets may need to shift their focus from headline noise to tangible outcomes. Several Trump-era themes now appear poised to move from speculation into execution—potentially reshaping capital flows and investment leadership in the second half of 2025. Trade tensions: rhetoric high, execution light Trade was one of Trump's most frequently mentioned topics in H1, with repeated threats of tariffs, especially targeting China and Mexico. However, so far, the execution has been limited. Tariffs have been repeatedly threatened but not enforced. Investors have largely shrugged off the noise, with markets often rallying after key deadlines pass uneventfully. Trump's approach to trade is being interpreted more as a tactical tool than an imminent threat to global commerce. Looking ahead: If tariffs are implemented following the August 1 deadline, cyclical sectors—particularly autos, industrials, and U.S. retailers—could face margin pressure. Conversely, another delay could restore risk appetite, especially for Asia-based exporters and global supply chain beneficiaries like India and Southeast Asia. Fed independence: pressure builds, markets stay calm Trump's persistent criticism of the Federal Reserve and calls for rate cuts have put the Fed's independence under increasing scrutiny. Despite this, Chair Jerome Powell has so far resisted political pressure. Trump's public criticism has escalated, including suggestions of removing Powell and risks of a shadow Fed chair. Although inflation has moderated, the Fed has maintained a steady policy stance—citing data dependence and caution around tariff-induced price volatility. Markets, however, are already pricing in rate cuts, supporting risk sentiment. Looking ahead: Powell's Jackson Hole speech in August and the September FOMC meeting will be key indicators of policy direction. If cuts materialize, they may reinforce the notion of a 'Trump Put'—suggesting policy will accommodate market weakness. If the Fed resists, volatility could reemerge, particularly across rate-sensitive assets. The 'Big Beautiful Tax Bill': promise or pipe dream? In typical Trump fashion, the 'Big Beautiful Tax Bill' was announced with fanfare, promising tax relief and a pro-growth boost to the economy. But so far, the plan remains more vision than law. The proposal includes corporate tax cuts, capital gains relief, and incentives for small businesses. Markets initially cheered the announcement, viewing it as a revival of 2017-style fiscal stimulus. However, concerns about funding, timing, and political gridlock have begun to surface. Looking ahead: The market appears to expect some version of the tax bill to pass, even if scaled down. A legislative impasse could spark policy disappointment and reverse optimism in tax-sensitive equities. Conversely, even partial passage could extend the rally in small- and mid-cap stocks and stimulate business investment. The new Trump trades: investment themes to watch from here As the policy headlines begin to transition into implementation, investors are starting to reposition toward themes that may have more staying power through Trump's second term. Artificial intelligence and infrastructure Trump has announced a $500 billion public-private AI infrastructure initiative, with participation from major firms including Softbank, OpenAI, and Oracle. Additionally, the GOP's tax bill proposes: $250 million in funding for AI-driven cybersecurity programs, Tax breaks for chipmakers building fabrication facilities in the U.S. Corporate spending remains strong, despite short-term earnings volatility: U.S. AI utilization rates have doubled year-on-year, according to Census Bureau data. Companies like Microsoft and Meta are ramping up AI development, adjusting internal structures to prioritize generative AI. Global investment competition is intensifying. China continues to pursue Nvidia chips, while Meta is expanding its in-house AI labs This level of commitment suggests AI is not a fad, but a structural shift that could define the next cycle of corporate capital expenditure. Defense and security Trump has signed several executive orders to support military innovation, cybersecurity, and domestic shipbuilding. The GOP spending bill allocates: $150 billion for defense overall, $29 billion specifically for shipbuilding, $170 billion for border enforcement. Geopolitical instability, from Russia-Ukraine to tensions in the Taiwan Strait, underscores the strategic focus. A $24 billion budget has also been proposed for a space-based missile defense system dubbed the 'Golden Dome.' These commitments make defense one of the more durable Trump trades, likely to benefit from bipartisan support. Metals and mining Resource nationalism is becoming a prominent theme under Trump. Executive orders supporting rare earths, copper, and energy exploration aim to reduce dependence on foreign suppliers. Highlights include: A Department of Defense investment in MP Materials, making the Pentagon its largest shareholder. Proposed tariffs on imported steel, aluminum, and copper, aimed at reviving U.S. production capacity. These developments signal longer-term support for U.S. mining and energy infrastructure, with implications for commodity prices and industrial equities. Digital assets and bitcoin Trump has taken a surprisingly proactive stance on crypto: An executive order was signed establishing a U.S. strategic Bitcoin reserve. A broader digital finance strategy aims to position the U.S. as a leader in blockchain innovation. Key legislative milestones are expected in H2, including a Senate vote on the Stablecoin Bill and the CLARITY Act. While crypto remains volatile, the regulatory direction under Trump appears to support innovation rather than suppression—potentially unlocking institutional flows. Small-cap stocks With more exposure to domestic demand and less sensitivity to global supply chains, small-cap equities are poised to benefit from: Proposed tax cuts, Looser regulatory conditions, Fiscal spending programs targeting infrastructure and innovation. These factors could unlock outperformance, particularly if the 'Big Beautiful Tax Bill' advances in Congress. Banking sector The combination of rate cuts and deregulation is creating a constructive backdrop for U.S. banks: Lower funding costs may boost profitability, Looser regulatory oversight could accelerate M&A activity, Underlying credit fundamentals remain relatively stable. This makes the banking sector attractive to investors looking for mean reversion and income. Fed rate cut plays Despite the Fed's current stance, markets are already discounting potential cuts by year-end. If rate cuts materialize, they would have broad implications: Duration-sensitive sectors such as utilities, REITs, and consumer staples stand to benefit as bond yields decline. High-dividend equities may regain favor, especially among income-seeking investors reallocating from cash. Growth equities, particularly in technology and communication services, may get an additional boost as discount rates fall. The falling US dollar could support non-U.S. equities and commodities, reinforcing flows into emerging markets and gold. China: from manufacturing to innovation China's economic trajectory is increasingly defined by a shift from export-led manufacturing to high-tech innovation: Despite demographic headwinds and trade restrictions, capital continues to flow into AI and semiconductors. China's pivot reflects a deeper transformation—from quantity to quality, and from global outsourcing to domestic capability. U.S. dollar outlook The combined impact of political interference in Fed policy, rising fiscal deficits, and potential rate cuts could push the dollar lower. A weaker dollar would: Make US assets less attractive for foreign investors, Enhance the appeal of European and Asian equities, Boost earnings for U.S. multinationals, Provide tailwinds for gold, oil, and other commodities. This macro backdrop favors international diversification, selective EM allocation, and commodity exposure in H2.
Yahoo
17-07-2025
- Business
- Yahoo
Copper prices have surged to record highs — and they could jump higher. Here's why
Copper is at the core of the American economy. It's in the wires of our pervasive electronics, in the walls of homes and in the engines of cars. Experts say President Donald Trump's plan for tariffs on the red metal could stymy the goal of boosting American manufacturing while potentially igniting inflation. Trump's July 8 announcement of a 50% tariff on copper imports beginning August 1 sent prices surging 13% in one day, up to a record high of $5.69 per pound. It was the biggest single-day increase in copper prices on record going back to 1968, according to FactSet. And those prices could just be a sign of things to come. A 50% tariff would be a 'massive tax on consumers of copper,' Ole Hansen, head of commodity strategy at Saxo Bank, said in a note. While Trump says his copper tariff is needed to spur domestic production due to national security concerns, there is no quick fix. The US imports over 50% of the copper it needs, primarily from South America, Hansen said, 'with no clear path to improving that for years to come.' That's because it takes almost 32 years, on average, from the discovery of mineable copper in the US to production, according to S&P Global Market Intelligence. And the end result of a big and fast copper tariff could simply be higher prices for many items, economists say. 'A tariff-induced price premium risks making copper—and by extension, US manufacturing and infrastructure—materially more expensive,' Hansen said. Copper is highly conductive, making it a critical input for electrical and electronic products. Copper can be found in the chips in mobile phones, plumbing in houses and in the engines of cars. 'This is a vital metal for everyday use,' Rob Haworth, senior investment strategy director at US Bank's asset management group, told CNN. 'You probably don't go a day where you haven't used something that has copper in it.' As Trump's self-imposed August 1 tariff deadline approaches, businesses and investors don't know what will happen in the wake of a massive tariff on a key component of the economy — let alone if the president will follow through with it at all, considering his history of backing off tariff threats. Widespread impact Copper is one of the most widely used metals in the world. The typical American-made car has over 50 pounds of copper, according to the Copper Development Association, a trade group. And the price of copper has been rising in recent years. The growing market for electric vehicles and the expansion of data centers thanks to the artificial intelligence boom have helped drive global demand for copper. Copper prices this year have smashed through previous records amid Trump's threat of tariffs. Copper futures in New York have soared almost 39% this year, outpacing the S&P 500's 6% gain, bitcoin's 24% gain and gold's 26% gain. Trump's tariffs on metals, including steel and aluminum, are intended to bolster US supply chains. His administration also cited national security concerns for levying a tariff on copper. But an import tax on copper would raise production costs for manufacturers in industries including construction, electronic goods and automobiles, according to Grace Zwemmer, an associate economist at Oxford Economics. 'All these tariffs raise costs and therefore injure downstream manufacturing,' Maurice Obstfeld, a professor of economics at UC Berkeley and member of former president Barack Obama's council of economic advisers, told CNN. 'For the US, this seems like a fairly pointless act of self-harm,' Obstfeld added. Businesses would face higher costs because there aren't many viable substitutes for copper, according to Brandon Parsons, a practitioner of economics at Pepperdine Graziadio Business School. While aluminum can be a substitute, it is more flammable and does not have the same conductivity, making it less viable for using in items like semiconductor chips. 'There isn't really a good way for businesses or consumers to avoid these higher costs,' he said. 'It's going to be felt widespread through the economy.' Where does the US get its copper? Chile, Canada and Peru provided over 90% of US copper imports in 2024, according to the US Geological Survey. The United States in 2024 mined an estimated 1.1 million tons of copper, according to the US Geological Survey, meeting just under half of its consumption. Arizona was home to more than 70% of domestic copper production in 2024. Shifting economic incentives in the modern era and the opening of free trade have both contributed to a decline in US copper production, according to Pepperdine's Parsons. The United States in recent decades has produced less copper as the global economy liberalized, enabling the country to import relatively cheap copper from countries like Chile and allowing the US economy to expand to other industries. Industrial buyers and Wall Street traders in recent months have shipped enormous amounts of copper to the United States to get ahead of potential tariffs. Morgan Stanley estimates 400,000 tons, or roughly six months' worth of 'extra' copper was front-loaded and delivered to the US in the early months of 2025. The copper stockpiles could 'temporarily buffer' the market when tariffs go into effect, according to Ewa Manthey, a commodity strategist at Dutch bank ING. However, the buildup of copper won't last forever, and it'll be difficult for the US to produce enough copper domestically. At some point, the US will likely need to import more copper under the 50% tariff, which could risk a resurgence in inflation, Manthey said. 'Higher copper prices also risk higher inflation, raising costs for US manufacturers without a domestic alternative available,' Manthey said. How would tariffs impact you? It remains to be seen whether companies will absorb the higher costs or pass the costs onto consumers in the form of higher prices, although economic theory suggests businesses would pass on higher costs to consumers when possible. Wall Street and corporate America have been expecting tariffs on copper — just not 50%. 'Investors were caught off guard, as the market had been expecting a much lower tariff rate,' Adam Turnquist, chief technical strategist at LPL Financial, said in an email. Smaller tariff rates such as 10% can be used strategically to encourage domestic manufacturing, economists say. But a rate as high as 50% could send a shock to markets, even leading to a drop in demand because prices are just too high. That could lead to slower economic growth across industries, such as a lull in home building. Plans to revive manufacturing and address national security concerns Trump has espoused using tariffs as a means to boost US manufacturing. But tariffs are not a panacea that will revive the manufacturing industry, Pepperdine's Parsons said. 'The rationale for this is to encourage production and investment in copper in the United States,' Parsons said. 'The issue is it's not like producing water, where you just open up the faucet. It could take years and years to open up a new copper mine, or even to expand production. So, while this does provide some incentive, it's something that's more long-run. You're going to feel the short-run pain.' Incentives like direct government subsidies or credits could promote domestic production of copper and fortify US supply chains, according to Parsons. While tariffs can help domestic companies sell more in the market, the higher prices can create unwanted ripple effects throughout the supply chain. Trump in February signed an executive order opening a Section 232 investigation into copper imports. That section of the 1962 Trade Expansion Act gives the president the authority to impose import duties to protect industries deemed vital to US national security. 'The United States faces significant vulnerabilities in the copper supply chain, with increasing reliance on foreign sources for mined, smelted and refined copper,' the executive order said. A Section 232 investigation comes with a 270-day deadline for an investigation, which means the Trump administration had until November to complete its review of copper, according to ING's Manthey. 'There are many foreign suppliers of copper, including close allies like Canada, so a national security rationale seems contrived,' Berkeley's Obstfeld said. Trump said in a social media post on July 9 confirming his intent to impose tariffs on copper that the metal is the second most-used metal in the Defense Department. But copper was not one of the 50 critical minerals designated by the US Geological Survey in 2022. The US Geological Survey is expected to publish an updated classification list for critical minerals this year. However, copper is considered a 'critical material' for energy, according to the Energy Department. 'The US has very limited current mining capacity,' Obstfeld said. 'It will take a decade or more to onshore copper production substantially. That will still leave copper prices much higher in the US, and in the meantime, American consumers and businesses will suffer even more.' Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
CNN
17-07-2025
- Business
- CNN
Copper prices have surged to record highs — and they could jump higher. Here's why
Copper is at the core of the American economy. It's in the wires of our pervasive electronics, in the walls of homes and in the engines of cars. Experts say President Donald Trump's plan for tariffs on the red metal could stymy the goal of boosting American manufacturing while potentially igniting inflation. Trump's July 8 announcement of a 50% tariff on copper imports beginning August 1 sent prices surging 13% in one day, up to a record high of $5.69 per pound. It was the biggest single-day increase in copper prices on record going back to 1968, according to FactSet. And those prices could just be a sign of things to come. A 50% tariff would be a 'massive tax on consumers of copper,' Ole Hansen, head of commodity strategy at Saxo Bank, said in a note. While Trump says his copper tariff is needed to spur domestic production due to national security concerns, there is no quick fix. The US imports over 50% of the copper it needs, primarily from South America, Hansen said, 'with no clear path to improving that for years to come.' That's because it takes almost 32 years, on average, from the discovery of mineable copper in the US to production, according to S&P Global Market Intelligence. And the end result of a big and fast copper tariff could simply be higher prices for many items, economists say. 'A tariff-induced price premium risks making copper—and by extension, US manufacturing and infrastructure—materially more expensive,' Hansen said. Copper is highly conductive, making it a critical input for electrical and electronic products. Copper can be found in the chips in mobile phones, plumbing in houses and in the engines of cars. 'This is a vital metal for everyday use,' Rob Haworth, senior investment strategy director at US Bank's asset management group, told CNN. 'You probably don't go a day where you haven't used something that has copper in it.' As Trump's self-imposed August 1 tariff deadline approaches, businesses and investors don't know what will happen in the wake of a massive tariff on a key component of the economy — let alone if the president will follow through with it at all, considering his history of backing off tariff threats. Copper is one of the most widely used metals in the world. The typical American-made car has over 50 pounds of copper, according to the Copper Development Association, a trade group. And the price of copper has been rising in recent years. The growing market for electric vehicles and the expansion of data centers thanks to the artificial intelligence boom have helped drive global demand for copper. Copper prices this year have smashed through previous records amid Trump's threat of tariffs. Copper futures in New York have soared almost 39% this year, outpacing the S&P 500's 6% gain, bitcoin's 24% gain and gold's 26% gain. Trump's tariffs on metals, including steel and aluminum, are intended to bolster US supply chains. His administration also cited national security concerns for levying a tariff on copper. But an import tax on copper would raise production costs for manufacturers in industries including construction, electronic goods and automobiles, according to Grace Zwemmer, an associate economist at Oxford Economics. 'All these tariffs raise costs and therefore injure downstream manufacturing,' Maurice Obstfeld, a professor of economics at UC Berkeley and member of former president Barack Obama's council of economic advisers, told CNN. 'For the US, this seems like a fairly pointless act of self-harm,' Obstfeld added. Businesses would face higher costs because there aren't many viable substitutes for copper, according to Brandon Parsons, a practitioner of economics at Pepperdine Graziadio Business School. While aluminum can be a substitute, it is more flammable and does not have the same conductivity, making it less viable for using in items like semiconductor chips. 'There isn't really a good way for businesses or consumers to avoid these higher costs,' he said. 'It's going to be felt widespread through the economy.' Chile, Canada and Peru provided over 90% of US copper imports in 2024, according to the US Geological Survey. The United States in 2024 mined an estimated 1.1 million tons of copper, according to the US Geological Survey, meeting just under half of its consumption. Arizona was home to more than 70% of domestic copper production in 2024. Shifting economic incentives in the modern era and the opening of free trade have both contributed to a decline in US copper production, according to Pepperdine's Parsons. The United States in recent decades has produced less copper as the global economy liberalized, enabling the country to import relatively cheap copper from countries like Chile and allowing the US economy to expand to other industries. Industrial buyers and Wall Street traders in recent months have shipped enormous amounts of copper to the United States to get ahead of potential tariffs. Morgan Stanley estimates 400,000 tons, or roughly six months' worth of 'extra' copper was front-loaded and delivered to the US in the early months of 2025. The copper stockpiles could 'temporarily buffer' the market when tariffs go into effect, according to Ewa Manthey, a commodity strategist at Dutch bank ING. However, the buildup of copper won't last forever, and it'll be difficult for the US to produce enough copper domestically. At some point, the US will likely need to import more copper under the 50% tariff, which could risk a resurgence in inflation, Manthey said. 'Higher copper prices also risk higher inflation, raising costs for US manufacturers without a domestic alternative available,' Manthey said. It remains to be seen whether companies will absorb the higher costs or pass the costs onto consumers in the form of higher prices, although economic theory suggests businesses would pass on higher costs to consumers when possible. Wall Street and corporate America have been expecting tariffs on copper — just not 50%. 'Investors were caught off guard, as the market had been expecting a much lower tariff rate,' Adam Turnquist, chief technical strategist at LPL Financial, said in an email. Smaller tariff rates such as 10% can be used strategically to encourage domestic manufacturing, economists say. But a rate as high as 50% could send a shock to markets, even leading to a drop in demand because prices are just too high. That could lead to slower economic growth across industries, such as a lull in home building. Trump has espoused using tariffs as a means to boost US manufacturing. But tariffs are not a panacea that will revive the manufacturing industry, Pepperdine's Parsons said. 'The rationale for this is to encourage production and investment in copper in the United States,' Parsons said. 'The issue is it's not like producing water, where you just open up the faucet. It could take years and years to open up a new copper mine, or even to expand production. So, while this does provide some incentive, it's something that's more long-run. You're going to feel the short-run pain.' Incentives like direct government subsidies or credits could promote domestic production of copper and fortify US supply chains, according to Parsons. While tariffs can help domestic companies sell more in the market, the higher prices can create unwanted ripple effects throughout the supply chain. Trump in February signed an executive order opening a Section 232 investigation into copper imports. That section of the 1962 Trade Expansion Act gives the president the authority to impose import duties to protect industries deemed vital to US national security. 'The United States faces significant vulnerabilities in the copper supply chain, with increasing reliance on foreign sources for mined, smelted and refined copper,' the executive order said. A Section 232 investigation comes with a 270-day deadline for an investigation, which means the Trump administration had until November to complete its review of copper, according to ING's Manthey. 'There are many foreign suppliers of copper, including close allies like Canada, so a national security rationale seems contrived,' Berkeley's Obstfeld said. Trump said in a social media post on July 9 confirming his intent to impose tariffs on copper that the metal is the second most-used metal in the Defense Department. But copper was not one of the 50 critical minerals designated by the US Geological Survey in 2022. The US Geological Survey is expected to publish an updated classification list for critical minerals this year. However, copper is considered a 'critical material' for energy, according to the Energy Department. 'The US has very limited current mining capacity,' Obstfeld said. 'It will take a decade or more to onshore copper production substantially. That will still leave copper prices much higher in the US, and in the meantime, American consumers and businesses will suffer even more.'
