Commodities on the rise as Trump outlines potential EU purchases

European markets are enjoying a rare period of respite this morning, following the worst four-day decline since the Covid-19 induced collapse back in 2020. An overnight session saw pan-Asian gains, with the Japanese Nikkei 225 enjoying a sharp 6% surge after a dour period that had seen over 16% lost since the beginning of last week. In Japan, the tariff-fuelled losses have been accentuated by a surge in the value of the Yen, with the overnight weakness in JPY helping to lift Japanese stocks.

With Trump rebuffing claims that he will delay tomorrows targeted tariffs by 90-days, traders should prepare for fresh volatility as we move through the week. Nonetheless, US plans for a $1 trillion defence spending bill have helped lift European defence contractors and manufacturers such as Rolls-Royce and Rheinmetall. Trump’s rejection of the EU’s offer of a zero-tariff deal on cars and some industrial products does highlight that we are likely moving towards some form of free-trade agreement. Instead, Trump claimed that the EU must close the gap on the $350bn trade deficit between the regions, proposing that the EU buys US energy in a bid to eradicate the trade imbalance. This highlights the likely direction of travel for negotiations, where countries need to close their trade surplus through pledges to buy US exports.

Aside from European defence stocks, the prospect of a $1 trillion defence budget has helped provide an uplift for industrial metals such as copper, silver, and palladium. The recent collapse in commodity prices comes off the back of growing recession fears, with Goldman Sachs currently putting the likeliness of a 2025 recession at 45%. Nonetheless, optimists will hope that we could soon move into a position where the US approve a bill that includes higher spending alongside deals to remove tariffs linked with multi-billion investments around the globe.