Key points in this update:
- A justified meltdown in risky assets as markets absorbed the blow of Trump’s far larger than expected tariffs spread to commodities which saw its annual gain halve
- What Trump delivered on this so-called "Liberation Day" was an economic war declaration likely to cause chaos across global supply chains
- Gold's safe haven credentials grow despite setback, while silver slumps on recession fears and COMEX indegestion
- Crude prices tumble on rising recession risks and accelerated OPEC+ production increase
This past week, we saw a justified meltdown in risky assets as markets absorbed the blow of Trump’s far larger than expected tariffs on all its major counterparts, sparking threats of retaliation and a broad selloff around the world on concerns that a global trade war on this scale and magnitude will drive an economic slowdown—not least in the US, where inflation forecasts have spiked, and sentiment among consumers and businesses has fallen sharply during the past couple of months.
There is a general understanding of why Trump wants to reshape the global economy, with his primary goal being the reversal of a two-decade trend of US companies moving production overseas—especially to Asia—to capitalise on cheaper labour costs, which, in turn, has boosted their stock prices but contributed to domestic job losses and economic stagnation in certain sectors and parts of the nation. This shift has had significant impacts on American manufacturing and the broader economy, as well as its ability to be self-sufficient in key materials.
Economic implications: short-term pain, long-term uncertainty
What Trump delivered on this so-called "Liberation Day" was an economic war declaration likely to cause chaos across global supply chains, while in the short term raising the risk of an economic fallout, hurting demand for key commodities, with energy and industrial metals being the sectors most at risk. While stock markets crumbled, investors sought shelter in secure government bonds, and for a change not in the US dollar, which normally acts as the go-to currency during times of heightened uncertainty. Instead, the euro, yen, and especially the Swiss franc have served as safe havens, while the US dollar weakened broadly. The narrative driving the US dollar lower is one of reduced portfolio allocations to the US as the policy will bring most disruption to the US economy in the near term.
BCOM’s year-to-date gain cut in half
The Bloomberg Commodity Total Return Index (BCOM) trades down 4% on the week, and following a brutal week the annual gain has been cut in half. As per the table below, the growth- and demand-dependent sectors of energy and industrial metals suffered the steepest losses; the precious metal loss was limited by gold’s resilience while the agriculture sector traded mixed to lower.
On an individual level, major losses were recorded in crude oil and refined products, copper, silver, and cotton, while a handful of different commodities barely scraped even, led by natural gas, gold, corn, sugar, and not least wheat, the best performer benefiting from a weaker dollar.