In today’s briefing:
- Political Pressure Steadily Mounting on the Fed as New Game of Chicken Emerges
- The Dog That Didn’t Bark
- The Trade War Is Dead! Long Live the Trade War!
- Bullish Copper: Comex-LME Spreads Off The Charts + Positive China TSF Data
Political Pressure Steadily Mounting on the Fed as New Game of Chicken Emerges
- The search for candidates to replace Chairman Powell is rumoured to be underway, while political attacks have become broader, including large financial losses being incurred by the Fed.
- US equities are playing a game of chicken with President Trump, believing that threatened tariff increases will not be implemented. Total consumer spending impacted by higher tariffs is relatively small.
- Hitherto, in contrast to predictions, there is scant evidence of tariffs significantly impacting import prices or consumer prices to the potential detriment of Chairman Powell’s credibility.
The Dog That Didn’t Bark
- We call the stock market recovery off the April panic bottom as a “the dog that didn’t bark” market as there are few signs of speculative excess.
- Technical indicators are also supportive of higher prices in the short run
- The main risk to the bull is an unwelcome rise in inflation expectations, which could rattle the bond market as well as stock prices.
The Trade War Is Dead! Long Live the Trade War!
- Despite all of the dire headlines about tariffs on Canada, Mexico and the European Union, the only trade war that matters is effectively over. China has won.
- In the short run, economic policy uncertainty is receding but it’s not fully normalized. It’s time to adopt a risk-on posture.
- In the long run, equity investors should not expect the S&P 500, which trades at forward P/E of 22, to continue to outperform global stocks in the next expansion cycle.
Bullish Copper: Comex-LME Spreads Off The Charts + Positive China TSF Data
- In our previous insight, Trump 50% Import Tariff Could Send Copper Into Stratosphere Short-Term: LME Can Breach 11k USD/Ton, we highlighted upside risk to the LME price.
- Comex-LME spreads remain elevated at $ 2,500/ton levels, reflecting the impact of tariffs that haven’t yet been imposed, amid ongoing supply disruptions. Inventories, though, have stopped depleting on the LME.
- We remain bullish on copper in the countdown to August 1st, where it is likely that tariffs of 50% are imposed on copper.
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