Home › Market News › ECB Rate Decision, Copper Futures, and Short-Term Strategies
The Economic Calendar:
MONDAY: S&P Global Manufacturing PMI (8:45a CT), Construction Spending (9:00a CT), Fed Logan Speech (9:15a CT), Fed Goolsbee Speech (11:45a CT)
TUESDAY: LMI Logistics Managers Index (5:00a CT), Redbook (7:55a CT), Factory Orders (9:00a CT), JOLTs (7:00a CT), Total Vehicle Sales (9:00a CT), Fed Goolsbee Speech (11:45a CT), Fed Logan Speech (2:30p CT)
WEDNESDAY: MBA Mortgage Applications (6:00a CT), ADP Employment Change (7:15a CT), Fed Bostic Speech (7:30a CT), S&P Global Composite PMI (8:45a CT), ISM Services Index (9:00a CT), EIA Petroleum Status Report (9:30a CT), Fed Beige Book (1:00p CT)
THURSDAY: Challenger Job Cuts (6:30a CT), Balance of Trade (7:30a CT), Import/Export Prices (7:30a CT), Jobless Claims (7:30a CT), EIA Natural Gas Report (9:30a CT), Fed Harker Speech (12:30p CT), Fed Balance Sheet (3:30p CT)
FRIDAY: May Jobs Report (7:30a CT), Used Car Prices (8:00a CT), Baker Hughes Rig Count (12:00p CT), Consumer Credit Change (2:00p CT)
Key Events:
The U.S. Non-Farm Payrolls for April came in at 177,000, and the May consensus and forecast is 130,000. The U.S. Unemployment Rate for May is forecast to remain at 4.2%.
The European Central Bank (ECB) is widely expected to cut its deposit rate by 25 basis points (bps) at its policy announcement on Thursday. Markets are assigning a 95% probability to this outcome.
The ECB also implemented a 25bps rate cut at its previous meeting, bringing the Deposit Rate to 2.25%. At that time, the central bank removed the reference to rates viewed as restrictive from its statement. A key takeaway from that prior statement was a deteriorated Eurozone growth outlook, attributed to rising trade tensions.
Since then, tensions have been easing between the U.S. and China, leading to an improved global trade outlook, but a trade deal between the European Union and the U.S. remains elusive. This lack of progress prompted U.S. President Trump to recommend a 50% tariff on the EU, effective June 1st. However, the threat of these tariffs has since been pushed back to July 9th, and the EU is intensifying efforts to reach an agreement.
Traders are recalibrating their understanding of presidential influence, as President Trump’s tariff negotiation tactics, ranging from his “Art of the Deal” approach to recent “TACO” strategies, now form a de facto “Trump Collar.” This new paradigm is reshaping how the market reacts to policy shifts in what has been termed the “Human VVIX” era.
A preliminary China trade deal, established by the Trump administration ten weeks prior, now faces significant uncertainty. This comes after President Trump’s recent assertive social media post, indicating a renewed hardline stance against China (referencing previous “TACO Trade” discussions).
And the media pointed out to President Trump in a press conference, the trading community dubbed “TACO Trade”. TACO = “Trump Always Chickens Out.” Market activity this year has repeatedly shown a clear pattern: sharp stock market declines following President Donald Trump’s trade war proclamations are inevitably reversed when the President softens his stance.
It seemed to rattle the President, as he talked tough again in the following days with trade negotiations with China. Will he “TACO” again???
Source: X.com
The S&P 500 climbed 5.54% over the month, while the tech-heavy NASDAQ 100 recorded an even more substantial 7.77% gain. Over the past five days, both indices remained positive, with the S&P 500 up 1.08% and the NASDAQ 100 up 0.99%. Year-to-date, their gains are more modest, up 0.20% and up 0.68%.
This strong recent momentum has led many analysts to suggest the market is overbought in the near-term and could be due for a breather. Still, historical precedents offer a long-term perspective: past downgrades, such as those in 2011 and 2023, led to short-term drops of around 10% in the S&P 500, only for the market to rebound and post gains of over 35% within a year. This suggests that while volatility may spike around periods of heavy rebalancing, long-term investors are advised to maintain perspective and resist panic selling.
Adding a notable counterpoint to the immediate caution, Morgan Stanley recently upgraded its stance on U.S. equities to “overweight.” The firm cited a global economy that continues to expand while experiencing some deceleration, providing a supportive backdrop despite ongoing policy uncertainty. This upgrade suggests a belief that underlying economic fundamentals may still provide a tailwind for stocks beyond any short-term rebalancing pressures.
Source: TradingView
Yields on longer-term Japanese bonds have surged to multi-decade highs (20-year at 2.555%, 30-year at 3.15%, 40-year at 3.61%).
Japanese economic data presents a mixed picture, with signs of contracting output indicating growing downside risks, yet increasing upside risks for inflation.
The Bank of Japan (BOJ) is expected to prioritize these price pressures, with a 25 basis point rate hike anticipated in July.
This impending policy shift, coupled with recent turmoil in Japan’s bond market, highlighted by a poorly received 20-year government bond auction with the weakest demand in over a decade, is drawing global attention.
The narrative of an impending copper deficit is gaining renewed traction in commodities circles, with some analysts forecasting the largest market shortfall in two decades. This sentiment echoes similar predictions that have circulated periodically for years, predating the COVID-19 pandemic.
However, a new catalyst has emerged in the latest iteration of this narrative: the burgeoning demand from the artificial intelligence sector. Proponents argue that the massive electrical requirements of future data centers, which are expected to be built imminently, will drive a significant surge in copper consumption. According to various sources, including Kostas Bintas from Trafigura, the market is already experiencing a tangible shortage.
Despite the bullish supply-demand forecasts, the immediate price action in the copper market remains subdued. A review of Comex July futures charts reveals a pattern strikingly similar to silver: prices appear flatlined, exhibiting little volatility, and seemingly ignored by traders.
While there are similarities, key distinctions exist. China not only controls the primary exchange where copper is traded but also holds the largest global metal inventory, which has been steadily declining. Nevertheless, the correlation between inventory levels for all London Metal Exchange (LME) metals and their corresponding prices has historically proven unreliable, adding complexity to interpreting current market signals.
Source: TradingView
Natural Gas Faces Headwinds Amid Weather, But LNG Export Boom Looms Large
Natural gas prices continue to contend with prevailing weather patterns, which have tempered demand in the near term. However, the longer-term outlook for the commodity remains robust, primarily driven by anticipated record surges in liquefied natural gas (LNG) exports later in the summer. LNG exports have reached record highs this year, a benchmark widely expected to be surpassed in the coming months.
Amid ongoing daily uncertainty in U.S. markets, several hedge fund allocators evaluate the tactical advantages of integrating short-term trading and trend-following strategies. These methods are a potential enhancement for high-beta portfolios, offering responsiveness to capitalize on market fluctuations and manage risks inherent in extended periods of volatility.
The recent market dynamics suggest a potential bullish shift for platinum and palladium, ending prolonged bear markets for both commodities. Several factors contribute to this optimistic outlook, creating potential trade opportunities:
Key Drivers for a Revival:
Source: TradingView
In a rare face-to-face meeting last Thursday, President Trump and Federal Reserve Chair Jerome Powell reportedly engaged in discussions that underscored their differing views on monetary policy. Despite months of public disagreements, Powell reiterated to the President that political considerations would keep the central bank’s decisions unswayed.
President Trump continues to assert that the Fed is making a strategic error by not cutting interest rates.
Federal Reserve officials are signaling a cautious approach to future rate adjustments. The confluence of tariffs, persistent trade policy uncertainty, and the potential for further tax cuts is prompting the Fed to maintain a steady course, awaiting clearer economic data before making any policy shifts. Futures markets are currently pricing in a strong probability of no rate change at the upcoming Federal Open Market Committee meeting, with a full rate cut not fully anticipated until October.
Source: CME Group
UBS Derivatives Outlook:
UBS’s derivatives team suggests reloading equity hedges, noting that U.S. equity volatility has rapidly normalized, making directional options historically inexpensive. They highlight the VIX, now in the high teens, as being at record lows relative to the S&P 500’s one-month price range. For hedging, UBS recommends outright put options on the Nasdaq 100 (NDX) and DAX, while put spreads are favored for the S&P 500 (SPX) due to prevailing skew.
JPMorgan Derivatives Outlook:
JPMorgan’s derivatives desk advises implementing VIX hedges, citing that April’s correction, which mirrored 2020 with elevated volatility and term structure signaling a strong rebound, has largely played out. Historically, short-term realized volatility tends to decrease after such rebounds, but longer-term implied volatility (like VIX) holds a floor, typically around 17.1. This environment is deemed favorable for a zero-cost VIX call spread collar strategy. An indicative trade involves buying the VIX August 25-29 call spread and selling the 16 put for a net zero cost.
