A Look at the Day Ahead in U.S. and Global Markets

By Amanda Cooper

Another week brings another round of tariff surprises from U.S. President Donald Trump. This time, it’s a 25% duty on all U.S. imports of steel and aluminium on top of any existing tariffs.

Investors are selling off shares in major steelmakers, but so far this has been orderly and price moves have been fairly contained. Tariffs have become part and parcel of the “Trump 2.0” operating manual and although they carry the risk of igniting volatility, the market has become a little less hypersensitive to each individual headline.

However, there are clear signs in the commodities world, where physical raw materials actually change hands, that traders are preparing for trouble.

The London gold market has seen traders scramble to move ingots to New York, which has pushed up short-term borrowing rates, out of fear that Trump could train his sights on precious metals as potential tariff targets – however distant a possibility that is. A similar dynamic has emerged in the copper market in recent weeks.

Copper has traditionally been viewed as a good barometer for the health of the underlying global economy, given its ubiquity and hence the nickname “Dr Copper.” When the price drops, it often indicates weakening demand from various sectors, including construction and electronics. Although its track record for predicting recession is not perfect, contractions in copper demand have often preceded slowdowns in global growth.

The copper price has rallied to its highest in several months, but analysts say this is due more to traders moving metal to mitigate potential tariff risks rather than optimism over global growth. In particular, metal is leaving London Metal Exchange (LME) warehouses and entering COMEX vaults. Since Trump took office on January 20, stocks of copper in LME warehouses have dropped by 3,600 tonnes, while those in COMEX warehouses have risen by almost exactly that amount.

Additionally, the gap, or spread, between LME and COMEX futures prices has widened to $740 a tonne, its highest in around 35 years, as traders engage in arbitrage – selling London futures in favor of buying U.S. ones. When Trump took office, this spread was below $240 a tonne.

In a note today, Citi strategists explore various strategies to trade global tariff risks, with the COMEX/LME arbitrage being one option. Funds have also increased holdings of COMEX copper futures and options in the latest week.

There are other bullish drivers for copper. Notably, buyers in China, the world’s largest consumer, are returning from the Lunar New Year holidays, contributing to the rise in prices.

For all the correlation between metal demand and the health of the economy, “Dr Copper” may not accurately predict how severe the eventual impact might be.

Key developments to watch in U.S. markets later on Monday:

• Three- and six-month Treasury bill auctions
• Quarterly results from McDonald’s (NYSE:MCD), Loews (NYSE:L), and Vertex Pharmaceuticals (NASDAQ:VRTX)
• AI Action (WA:ACT) Summit opens in Paris, France