The chart below shows the Thomson Reuters Jefferies Commodities Research Bureau Index for the past 12 months. From the election until mid-February, the index gained 5.83%; buoyed by the hope and prospect that the new administration would deliver on its campaign promises.
Source: Thomson Reuters Jefferies, Spotlight Indices
However, move forward 10 months from the election and eight months since Trump assumed office, and one can see that serious doubts have emerged about the momentum behind Trump's agenda to overhaul US infrastructure. And the president's decision last week to disband the manufacturing council and strategy & policy forum certainly did not help soothe those worries.
Trump had said he would not move on tax reform and infrastructure until the “Affordable Health Care Act”, commonly known as “Obamacare”, was repealed, so the initial defeat of his health-care alternative triggered a correction in the commodities index. With further failed attempts at repealing his predecessor’s health programme, the corrective channel soon became fully established.
As such, it has weakened the support industrial commodities, such as copper, steel and crude oil, have recently relied upon.
Big pledge, little movement
As a candidate, Trump’s pledge to “rebuild our country with American workers, American iron, American aluminium, and American steel” served as a vital line of support to an asset class and an industrial base that faced severe global competition and excessive inventory overhang.
Just over a week ago, on August 15, he issued an executive order directing federal agencies to accelerate their review of the environmental effects of infrastructure projects.
This was widely seen as a step along the path of speeding up the construction of the infrastructure pledged during the campaign. But right now, such a pledge looks worthless.
The disbanding of the manufacturing council and strategy & policy forum has certainly dealt a body blow to the industrial commodities space.
Source: Spotlight Indices
The index for metals has been distorted by the recent surge in copper. It currently trades at $2.98/lb, (0643 GMT) which is hard on the 38.20% retracement of the metals long-term range. I consider a break below $2.58/lb as being more likely than a new surge higher to $3.29/lb.
So I expect that the metals index will soon start to track lower and form a new correction, and spot will tumble lower to break under the 200-day moving average, just as can be seen in the oil and gas index.
This should be taken as a setback for Trump the self-proclaimed natural negotiator and brilliant businessman. In closing the advisory councils, he has lost the insight and input of top business leaders from Main Street and Wall Street.
Why did he close them? Not because of an economic decision. It was simply because too many leaders abandoned him as they would not be associated with the president’s remarks about the white supremacist marchers in Charlottesville, Virginia.
This paper is about the market and economics, so I will not delve deeply into the politics, except to say that how anyone can offer a single line of support to such organisations is beyond reason.
The strategy councils may have been more symbolic than real vehicles of administration policy, however, they were useful as they served to inject an air of commercial realism and focus into the administrations proposed agenda.
What is certain is that the stance that has been taken is not good for the industrial and energy commodity sectors in general. Among other agricultural and softs, only lumber futures stand to lose.
Out of time
The markets would have every right to act as though they have had enough of this lacklustre administration. It lurches from one problem to another, and, in the meantime, nothing gets done to improve the economy or society. What were at first difficult challenges are starting to look insurmountable. Let’s be honest, the 1,074,000 jobs created in the US from February to July are an accomplishment of business, not the Trump White House.
The failure to addresses even shovel-ready projects will put even more time pressure on the review bodies once any new scheme is sent for consideration. If corners are cut and the due diligence on environmental impact is compromised, the Trump legacy will be that he left the US vulnerable to environmental damage and climate change effects.
Once again, we have been driven to situation where gridlock in Washington and ineptitude in the White House are piling all the pressure to stave off an economic retreat at the door of the US Federal Reserve.
As the Trump pro-growth agenda is slowly torn to tatters, the emphasis on economic stability falls back to the Fed. One can only speculate at how tricky and treacherous is the path that Fed chief Janet Yellen must steer as she attempts to normalise policy and shrink the Fed’s balance sheet.
The commodities space has been on the back foot since April 2011, and now the situation is looking worse as it faces more headwinds than potential upsides, particularly in the industrial segment. Traders in these assets know that it is useless to put so much faith in US dollar weakness, and they certainly cannot rely on China.
I think one should be looking to get out of the way as commodity bulls will shortly be dumping their long positions. For all the political campaigning, all President Trump has done is poke the commodities bear; and he has a mighty sore head.
Open-pit copper mine. Lack of progress on Trump's infrastructure renewal plans has put industrial commodities from metals to energy at risk of a selloff. Photo: Shutterstock
— Edited by John Acher