July thirty-first, two thousand twenty-five
《FOMC, Copper, and the New Trade Deal》
FOMC, Copper, and the New Trade Deal
Preface: So-called major macro trading years tend to share some clear characteristics. Even consensus trades that seem unquestionably right and are held with strong conviction by global capital can repeatedly reverse and reverse again—gold, U.S. equities, oil, and the dollar, for example... Even at more specific levels, capital spending, reshoring, and the AI theme have all been affected by macro uncertainty...
One, staying open-minded is far more important than clinging to positions
First, let’s look at https://mp.weixin.qq.com/s/lfwlM0XtmjxSnjGoiyO-yQ这篇文章做一些补充..
The essential difference between short-term and long-term trading is not time; holding period is only an outcome. Every view, right or wrong, must be tested with real money in the market.Global capital was extremely bullish on the dollar from 11 last year, turned extremely bearish in 4 this year, and has now returned to a bullish stance.. In a time of constant change, staying open and receptive is far more important than clinging to current positions and “sticking it out, refusing to admit defeat.”
The U.S. Dollar Index has returned to the News Pivot Point of 4 9, because the market is gradually realizing that most of the factors that previously supported the weaker-dollar narrative have at least temporarily disappeared, apart from highly structural factors such as the international investment position (NIIP) and fiscal deficits, It is now becoming increasingly difficult to find a coherent argument for a bearish dollar view.
Chart: USD is having a noticeable 5-day move—the largest in 3 years …
Many of the major backdrops have been reversing since the start of the year:There are no signs of capital flight; the Section 899 provision has been put on hold; the Mar-a-Lago Accord has been disproven; U.S. GDP growth is holding steady at around 2.5%; unemployment is low; initial jobless claims are falling; inflation remains stubborn; rate cuts have been pushed back; and, as uncertainty gradually fades, the AI capital expenditure story continues to accelerate.
Gold also appears to be weakening as the dollar-debasement trade loses momentum and policy uncertainty declines significantly, especially now that most major economies have reached some kind of trade agreement with the United States.
Taking the right view at the wrong time only leads to greater disaster. There is only one right approach: get the direction right, and get the timing right. Our main views remain unchanged: the dollar will still fall, the euro will still rise, U.S. equities will still fall, and gold will still break to new highs...
But not today.
Chart: Risk control is one of the few things truly within our control
We will choose to buy back in again at the right time.
Keep an eye on Wrap; every change will be shared immediately.
Two, FOMC
As expected by the market, the Fed kept interest rates in the 4.25%–-4.50% range (the 5th consecutive pause),The statement was broadly in line with expectations; the main highlight was Acknowledgment that economic growth is slowing: 1) The opening described growth as “having slowed somewhat in the first half of the year,” whereas the previous wording was “continuing to expand at a solid pace”; 2) Fed Governors Waller and Bowman voted against the decision (the first time there have been two dissenters since 1993), and they supported a 25-basis-point rate cut.
Chart: In its statement, the Committee noted that economic growth had slowed somewhat in the first half of this year; apart from this wording, it made almost no other changes to the post-meeting statement.
There were no other major changes apart from keeping the “uncertainty” around the economic outlook “still elevated,” rather than saying it had “diminished”;This essentially signals that the possibility of a rate cut in 9 is opening up.
Sometimes we don’t want to say too much because many things that others now consider new information and are discussing were already covered many times in Notes. When there’s time, we should review the earlier material promptly rather than discuss it again. We worry some readers may have missed it, but repeating it can also take up too much space.
At the press conference, Powell pointed out that Inflation’s internal composition has diverged: services prices are falling, while goods prices are rising because of “government policy” (that is, tariffs).But long-term inflation expectations remain consistent with 2%’s target, and monetary policy is still “moderately restrictive.”
Chart: Notes250725 “Timing and Tempo”
The question-and-answer session went straight to the point: 1) The possibility of a rate cut in 9—Powell said “no decision has been made”; two more inflation reports will be released before then, and he believes current policy is not inappropriately restraining the economy... In practice, this kept policy options open. Of course, it also clearly did not pave the way directly for a rate cut in 9 as the market expected, which is reasonable.
Chart: Notes250707 “The Moderate Cooling Scenario”
2) Employment is slowing; Powell acknowledged that downside risks do indeed exist, but the quit rate, job openings, and unemployment rate remain resilient
3) On the dissenting votes, this was“a very good meeting”; disagreement is not a problem, since a clear explanation was provided and a range of views was reflected. As noted above, This was the first time two Fed governors had cast dissenting votes since the 1993 12 FOMC meeting.
In 1993, At the time, Wayne Angell and Larry Lindsey voted in favor of tighter monetary policy as the United States emerged from the 1990 recession. The FOMC ultimately raised rates at its 1994 2 meeting and began normalizing policy.
4) Tariff/inflation pass-through—still at an early stage, with some impact already showing up in consumer prices, but it will take a long time to assess the effects…Powell commented that “not raising rates” meant he was “looking through” inflation (an unexpectedly hawkish remark),After this statement, market sentiment abruptly reversed: the S&P gave back its gains, and the 2-year U.S. Treasury yield and the U.S. dollar index hit new highs for the day.
Chart: Market reaction
Powell said the FOMC is weighing the risks on both sides of its dual mandate and will assess them as the data evolve:
“This is the unusual situation we are in: there are risks to achieving our inflation goal, and there are risks to achieving maximum employment. When we paused, inflation was above target and labor market conditions were good, so the tightening policy we had in place supported a return of inflation to target. As these two objectives gradually come back into balance, you would think we should move toward a neutral stance, and our next steps are likely to move in that direction.What conditions would be needed? It depends on the totality of the data. As I mentioned, a great deal of data will be released before the next meeting. Will those data be decisive? It’s hard to say. We won’t make a decision now; we can only wait and see.”
The market lowered the probability of a rate cut in 9 to near 50%, while waiting for the next two employment reports and two CPI data releases.
Three, copper
The market had long expected the United States to impose steep 50% tariffs on imported copper cathodes (for those unfamiliar with the term, electrolytic copper—that is, standard copper sheets produced through electrolytic refining—is commonly called “copper cathode.” It is the main deliverable form of refined copper; the standard deliverable traded on markets such as LME and COMEX is this copper cathode sheet) to encourage self-sufficiency in the domestic supply chain. However, the White House’s latest plan came as a complete surprise to the market:The import tariff on cathodes is 0%, and the only commitment is to reassess the issue midway through 2026 to decide whether to impose a 15% tariff on cathodes starting in 2027. This decision directly overturned the market’s previous consensus expectation.
One key signal conveyed by this is:The United States is in no hurry to use high tariffs to drive localization of the cathode stage.
In fact, this means the United States may already be preparing to secure copper cathode supplies for the coming years through long-term supply contracts with countries such as Indonesia, Chile, and the Congo, so it does not need tariff incentives to achieve self-sufficiency. This is entirely different from the market’s previous interpretation—theThe market once thought tariffs were the main means for the United States to achieve self-sufficiency across the critical minerals supply chain. But now, the United States seems more likely to secure supply by combining access to external resources with domestic quota management.
Looking at the specifics, policy for the semi-finished products stage appears more aggressive than for cathodes, The United States is imposing a 50% tariff on semi-finished products, clearly to accelerate self-sufficiency at this stage. This suggests that U.S. strategy may be shifting toward building full capabilities in high-value-added stages, while hedging the risk of upstream import dependence through long-term contracts.
This strategy reduces supply-chain risk while giving greater control over strategic stages.
Fourth, Finally... on the trade agreements being reached one after another
Following the U.S.–Japan and U.S.–Europe agreements, the U.S.–South Korea agreement has also finally been reached. Lutnick said: “Today, we reached another historic trade agreement,”South Korea will invest 3500 hundred million dollars in the United States for investment projects selected by Trump, and the American people will receive 90% of the profits. South Korea also agreed to purchase 3 hundred million dollars’ worth of U.S. liquefied natural gas and other energy products over the next 1000 and a half years. The South Korean president will visit in the coming weeks, when major investments by South Korean companies in the United States will be announced.
As with Japan and Europe, this once again includes a commitment to make massive investments in the United States:
In fact, after the European agreement was finalized, criticism began largely among EU leaders and spread across Europe:
The French prime minister called the agreement’s conclusion a “dark day” for Europe and accused von der Leyen of “submission.” France’s trade minister also took a firm line: “This is not over.” Meanwhile, the Hungarian prime minister accused von der Leyen of being so weak that Trump swallowed her whole for breakfast (that’s roughly the idea).
More importantly, this humiliating agreement came at a historic moment when the EU had spent more than half a year trying to promote and champion a European renaissance. The supposed defense independence and development detached from the United States have basically become a joke.Outside observers had thought Europe might be taking the baton of global leadership, but now it once again appears weak and divided.
Figure: Notes250729 “No Change”
This may also be one factor behind one of the reasons for the euro’s straight-line decline against the U.S. dollar:
Figure: The euro fell for four consecutive days, its largest decline since 23 2
Internal pressure will make this agreement harder to reach, while the European Commission making the commitments essentially has no authority to buy military equipment or direct member states on how to procure it. It neither imports energy directly nor can dictate what energy member states should import..
TS Lombard economist Davide Oneglia said the huge figures behind the agreement “make no sense, because not only is it impossible for EU demand to grow to that level, but U.S. exporters are also unable to supply such volumes,”The lack of detail highlights that the agreement von der Leyen and Trump reached in Scotland is essentially a pragmatic political arrangement, not a legally binding contract.
We ask the traders in our own trading room to put out roughly one single-market note every 2 days, covering U.S. stocks, A-shares/Hong Kong stocks, and commodities. We select the better ones for the corresponding “little planets.” (Some include our own commentary, but we do anonymize certain details.)
Anyone interested can subscribe as needed (subscribe only if you need it; don’t waste your money):
U.S. stocks:https://www.meridianresearch.app/home?product=us-strategies(Xingzhi)
A-shares/Hong Kong stocks:https://www.meridianresearch.app/home?product=asia-strategies(Ganglong)
Commodities:https://www.meridianresearch.app/home?product=commodity-strategies(Dixin)
In terms of detail, we’ll probably get down to the industry level. For mainland China, we’ll try to avoid crowded trades; if we write too specifically, someone may front-run us. We may be able to be a little more specific about U.S. stocks, but readers will still need to think things through and fill in the gaps themselves, There are no trades to copy directly!。
The overall win rate has been pretty good lately.
We don’t know whether everyone likes this new Notes format. If you prefer it, please leave a like so we know. Based on the feedback we receive, we’ll decide whether to continue with this kind of content or return to the previous column format.
Wishing you all the best.
2025.07.31
Note: All content herein is for reference only and does not constitute investment advice or serve as a basis for any laws, regulations, or regulatory policies. Investors should not use or rely on this information as a basis for decisions.