Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Global Head of Macro Strategy
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Commodities weekly: Tariffs, trade tensions, fiscal bazooka, and Ukraine all key drivers
Ole Hansen
Head of Commodity Strategy
Key points in this update:
- Following broad weakness in late February, commodities rebounded, primarily driven by gains in precious and industrial metals
- Overall, the Bloomberg Commodities Total Return Index (BCOMTR) trades 6.3% on the year, thereby cementing its position as one of the best-performing asset classes in 2025.
- We highlight the difficulty in achieving low crude oil prices without suffering a price-supportive production setback
- Precious metals remain bid but will fiscal expansion in Europe divert investor flows?
- Tariff threat disconnects New York-traded copper from global prices
Donald Trump’s on-off trade war continues to roil markets in a week that also saw Germany unveil a massive spending plan, poised to be the largest economic stimulus since the fall of the Berlin Wall. The plan allows for potentially unlimited borrowing for defence and includes a EUR 500 billion fund for infrastructure investments. Breaking with over two decades of fiscal conservatism, it comes amid a rapid deterioration in US-Europe security ties.
The news sent the US dollar tumbling against the euro and drove German borrowing costs to their steepest rise in 17 years, while boosting companies set to benefit from the spending surge. Meanwhile, a different picture is emerging in the US where a decade of US exceptionalism—which helped attract billions in foreign stock market investments— show signs of fading. Trump’s erratic tariff policies and attacks on key trading partners have triggered countermeasures, reinforcing that trade wars leave no winners.
Beyond geopolitical tensions and the potential breakdown of a long-standing world order, investors are reacting to a sudden deterioration in US economic data. This has intensified stagflation concerns—characterised by slowing growth, rising unemployment, and higher inflation. Forward-looking indicators suggest these risks could materialise in the coming months.
Following broad weakness in late February, commodities rebounded, primarily driven by gains in precious and industrial metals as tariff concerns lifted futures prices on the COMEX exchange in New York. In energy, a slump in crude and fuel products due to global demand concerns and rising OPEC+ production was offset by strong gains in natural gas. China’s countermeasures against Trump’s tariffs hurt the grains sector, especially corn, while cocoa slumped to a four-month low after forecast confirmed record high prices in the past year had triggered a severe demand adjustment.
Overall, the Bloomberg Commodities Total Return Index (BCOMTR) traded up 1.4% on the week with a year-to-date gain so far around 6.3%, thereby cementing its position as one of the best-performing asset classes in 2025. Except for grains, which have suffered a rush of speculative long liquidation worsened by uncertainty over what will happen with tariffs after 2 April, the other sectors trade up on the year, with softs (10%) and precious metals (+11%) being the main drivers. On an individual level, the best-performing markets so far this year are US natural gas (+34%), Arabica coffee (+24%), and HG copper (+17%), while the two standout commodities that have suffered steep losses are cocoa (-27%) and EU TTF gas (-21%). Coincidentally, none of these two are included in the BCOM index.
The spread between US and European natural gas prices continued to narrow after US prices surged over 10% on strong domestic demand and record LNG exports, while in Europe, the Dutch TTF benchmark futures slumped to a September low of EUR 37 per MWh—a nearly 40% drop from February’s winter peak. While EU’s gas storage inventories have depleted at an uncomfortable fast pace this winter, traders are pricing in lower consumption as spring approaches and speculating that Russian fuel will remain part of Europe’s future energy mix. Opening the possibility of Russian piped gas returning to the EU should a Ukraine peace deal be achieved.
Crude oil: “Having your cake and eating it too”
Crude prices were heading for their biggest loss since October with prices trading near four-year lows before recovering ahead of the weekend after Trump’s about-turn on tariffs supported a round of short covering, and after talks on resuming Iraqi oil flows to Turkey from Iraqi Kurdistan failed for the second time in two weeks with pricing and payments being the main sticking points. Prior to these price supportive developments prices had been weighed down by fears Trump’s aggressive trade policies may trigger a global trade war that would negatively impact global growth and demand. In addition, traders were also spooked by a plan by OPEC+ to gradually start reviving production from next month, concluding such an increase would lead to an overhang of supply forcing prices lower.
We believe this is concern is overstated, not least considering the risk of lower output from Iran in the coming after Treasury Secretary Scott Bessent said the US would ramp up sanctions on Iran, adding that the US will “shutdown” the country’s oil production and that “Making Iran broke again will mark the beginning of our updated sanctions policy.” In the same speech he also claimed that the US will not hesitate to go “all in” on sanctions on Russian energy if it helps bring about a ceasefire in the Ukraine war.
If carried out, the above threats may ultimately not lead to any net increase in OPEC+ production, merely a redistribution among its members with GCC producers being the main winners, allowing them to increase production without hurting prices. In addition, we have also seen continued focus on Trump’s “Drill, baby, drill” comment being followed up by Trump advisor Peter Navarro on Fox news saying the administration is targeting a USD 50 oil price, which according to him would be enough to reduce inflation by at least a percentage point. Courtesy of OPEC+ production cuts, US crude producers have enjoyed high and relatively stable prices in the past couple of years, allowing them to increase production.
However, lower prices cannot be achieved without hurting output from high cost producers, many of which are located in the US, and production growth will likely slow and ultimately reverse well before prices get anywhere near the mentioned 50-dollar per barrel level. In a Dallas Fed Energy Survey from March last year – an updated version expected later this month, US oil producers gave their view on what price level would be needed to profitable drill a new well, and as we can see from the table, a price near USD 60 would have a significant negative impact on drilling activity. In other words, the US administration needs to decide whether it wants lower prices or keep their status as the world’s biggest producer of liquid fuels, including gas.
Tariff threat disconnects New York-traded copper from global prices
During an address to Congress, Trump earlier this week defended his economic plans and called for a wide range of tax cuts and spending reductions, while also repeating the administration’s intention—on national security grounds—to slap a 25% tariff on imports of aluminium, steel, and, importantly, copper, which immediately drove prices of HG copper futures traded in New York sharply higher, thereby widening the premium to international prices, especially against copper traded on the London Metal Exchange (LME) to 10%.
While the US president has already signed an executive order to impose that levy on aluminium and steel from 12 March, the copper market may have seen a premature reaction, in the sense that an investigation carried out under Section 232 of the Trade Expansion Act normally takes months to be completed. This means the impact on prices will take longer to be felt than what is currently being priced in. However, a 25% tariff was clearly not what the market was expecting, and now traders are scrambling to price in the correct level, in the process causing disruptions and higher prices in the US and arbitrage opportunities for others.
For several weeks, we have already seen this disruption play out in the precious metals market, where millions of ounces of physical silver and gold bars have been transferred to vaults in the US to avoid having to pay tariffs on imported metals used to cover short hedge positions in the COMEX futures market. Looking ahead, and until the level of tariff becomes official, the US copper market will exhibit a greater level of volatility. The LME exchange will likely experience a price-supportive draw on inventories, that just like gold and silver will be shipped to New York, and sold into the COMEX futures market at the prevailing premium.
Gold rally resumes with limited focus so far on Europe’s fiscal expansion plans
Gold’s overdue correction once again proved short-lived, with buyers returning to seek shelter against broad market uncertainty and concerns over US tariffs. Beyond geopolitical tensions and the potential breakdown of a world order that has prevailed for generations, traders and investors are also reacting to a sharp and sudden deterioration in US economic data.
With that in mind, the outlook for gold remains supportive, particularly given the limited depth of the latest correction, which signals strong demand despite selling pressure from technically focused traders. In addition to diversification and safe-haven demand, gold will likely continue to benefit from central bank buying and fiscal debt concerns. With the US dollar crumbling, another key level of inertia for gold has also been reduced, while the risk of an economic slowdown has lifted the expected number of 25 basis-point rate cuts this year to more than three from a January low of just one cut.
One potential cloud on an otherwise bullish horizon that emerged this past week was the massive fiscal expansion in Europe, which may signal a slight change in the sentiment, but whether it is enough to reduce attention from multiple other sources of support remains to be seen. What it could lead to, however, is renewed focus on silver given its semi-industrial credentials potentially lifting demand at a time when mined supply is struggling to meet demand, forcing a reduction in above ground stockpiles.
5 Mch 2025: Tariff threat disconnects HG copper from global market
4 Mch 2025: Stagflation and geopolitical tensions fuel renewed demand for gold
3 Mch 2025: COT Report: Broad retreat sees WTI longs slump to 15-year low
28 Feb 2025: Commodities weekly: Broad weakness as tariff fatigue sets in
24 Feb 2025: COT Report: traders turn selective despite ongoing broad rally
21 Feb 2025: Commodities weekly: energy market strength and Trump rethoric fuel surge
18 Feb 2025: COT report: crude, gold and grains see mild profit taking
5 Feb 2025: Broad Strength Drives Commodities sector to 26-month High
4 Feb 2025: Crude Oil Wipes Out 2025 Gains as Tariffs and Demand Weighs
3 Feb 2025: COT Report: Mixed Week Seen Ahead of Trump's Tariff Offensive
1 Feb 2025: YouTube: Joining Kevin Muir on The Market Huddle podcast
31 Jan 2025: Commodities weekly: Strong January led by precious metals
29 Jan 2025: Agriculture sector rally led by coffee, corn and cattle
27 Jan 2025: COT Report: Commodity buying extends to fourth week
24 Jan 2025: Commodities weekly: Trump tariff threats and energy agenda in focus
23 Jan 2025: Crude oil weakens amid tariff uncertainty
22 Jan 2025: Gold and silver see fresh gains as Trump 2.0 era begins
20 Jan 2025: COT Report: Elevated commodities longs face short-term risks
17 Jan 2025: Commodities weekly: Strong January rally pauses ahead of Trump
15 Jan 2025: Q1 2025 Commodity outlook: A bumpy road ahead calls for diversification
14 Jan 2025: COT Report: Hedge fund long jumps to 17-month high led by crude, gas and metals
13 Jan 2025: Crude oil rally amid winter demand and Russian sanctions
10 Jan 2025: Commodities weekly: Strong start to the year led by energy and metals
7 Jan 2025: COT Report: Managed money's year-end positioning in forex and commodities
Podcasts that include commodities focus:
7 Mch 2025: US bear market risks ratchet higher. EUR train has left the station
4 March 2025: Are we on the verge of a big whoosh?
25 Feb 2025: Meltdown risks are rising. What to watch next
18 Feb 2025: Europe is on fire
5 Feb 2025: Mag 7 risks underappreciated?
3 Feb 2025: If new Trump tariffs stick, markets have only just begun to react
31 Jan 2025: Does the market think Trump is bluffing?
29 Jan 2025: The DeepSeek winners emerge
27 Jan 2025: DeepSeeking missile strikes global markets
24 Jan 2025: Four days in, Trump continues to dominate headlines, but ...
20 Jan 2025: Trump 2.0 swings into action
17 Jan 2025: Brace for Monday, as a new era begins
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