Edward Meir's Week in Review for AMU

But the remark that caught the markets off-guard was one made by Powell early on in his news conference. He warned that “a reduction in the policy rate at the December meeting is not a foregone conclusion — far from it.” This was a rather surprising pivot as investors were expecting at least one more rate cut by year-end. Powell defended his caution on rates, saying countervailing forces put the central bank is in a difficult position. On one hand, weaker labor market conditions call for lower rates. On the other hand, above-target inflation argues for more restrictive policy. In addition, Powell said lingering tariff uncertainties and the dearth of government data on account of the shutdown suggest it might be best for the Fed to stay on the sidelines next month, likening the pause to slowing down while driving in fog.

On inflation, Powell down-played the impact of the tariffs, calculating its impact to be roughly between .3%–5% on overall CPI. But he admitted that certain goods are seeing more substantial price increases. (We are certainly seeing that in some of the metals). The Fed Chair expressed hope that tariffs would constitute a one-shot increase to inflation. He acknowledged, however, that US consumers are feeling squeezed by previous price increases and need to see their real incomes grow so that they can “catch up” to past price increases. That income growth, unfortunately, will need more time to materialize.

With regard to the labor market, Powell noted that many US companies are simply not in a hiring mode right now. That’s partly because of weaker demand, coupled with the fact there are less workers around. Indeed, tighter labor supply is being reflected in falling labor participation rates. The lower supply results from more stringent immigration policies. Still, Powell noted that the central bank is seeing no signs of mass layoffs and that unemployment remains historically low, at about 4.3%.

Powell’s remarks, especially on the December cut, not only led to Thursday’s rather significant but short-lived equity sell-off, but also resulted in a stronger dollar and higher treasury rates. Both retained their strength heading into week’s end. Two-year yields tacked on 22 basis points on the week, finishing at 3.6%, while the 10-year rose 11 basis points, ending Friday at 4.10%. For its part, the general dollar index finished up by almost a full point and is now at a three-month high.

On the trade front, negotiators achieved some breakthroughs in the critical US-China trade relationship this past week. In his meeting with Chinese President Xi Jinping in Seoul, President Trump agreed to reduce fentanyl-related tariffs to 10%, from 20%, bringing China’s average tariff down to 47%. (These newer rates are still relatively high and only bring them back to levels last seen at the start of the year.)

For its part, China agreed to pause its rare-earths licensing regime for at least a year. But it did not agree to fully remove controls on these sales. In addition, the Chinese announced two soybean purchases. However, details of a more significant 25-million-ton soybean purchase (over three years) have not been clarified. And lastly, China will suspend special port fees targeting US ships, and the US will do the same with its port fees on Chinese vessels. We think this will benefit China far more than the US given the lopsided trade imbalance and the preponderance of Chinese freight carriers.

Issues the two leaders did not address were related to export controls on US chips, including Nvidia’s Blackwell AI processors. Beijing’s ongoing probes into US firms were not brought up either, and Taiwan also did not come up.
The talks clearly de-escalated recent tensions. But judging from lackluster market reaction the next day in both Asian and US equity markets, global investors did not perceive this meeting as constituting a major breakthrough. If anything, the deal constituted a temporary truce – one that is welcome nevertheless.

One country not making much progress with the US on trade is Canada. Here, we learned that Canadian Prime Minister Mark Carney has apparently apologized to President Trump for the heavily edited Ronald Reagan ad that ran in Ontario several days ago. Although Trump acknowledged and accepted Carney’s apology, he has not yet agreed to resume talks with Ottawa – nor has he dropped the latest 10% tariffs imposed last week.

In the commodity markets, there was not much change in the weekly move of the FTSE general commodity index. Among the individual sectors, crude oil prices lost $0.52/barrel on the week and closed lower for a third consecutive month. Prices had risen earlier in the week on talk about possible US military strikes on Venezuela. But values fell back after President Trump denied such action was being considered. Meanwhile, crude exports from Saudi Arabia hit a six-month high of 6.40 million bpd in August and are set to climb further as the Saudis are apparently contemplating another price decrease for Asian customers. Outside of crude, product prices were steadier. Gasoline ended unchanged on the week, while diesel tacked on about $0.07/gallon.

Natural gas prices settled at a six-month high of $4.11/mmbtu on Friday, up by about $0.90 on the week for their biggest percentage weekly advance in 18 months. Prices were also up by about 25% in October, their largest monthly percentage gain since March. We think the gas rally seems overextended given rising gas output and mid-term weather forecasts calling for mostly warmer-than-normal temperatures through Nov. 15. That’s not exactly a recipe for higher heating demand. EIA numbers did not come out last week on account of the government shutdown.

In the base metals space, prices experienced a fairly volatile week, with copper making a fresh record high and aluminum also hitting a three-year peak before both retreated by week’s end. The net change on the week in pretty much all the metals was fairly modest. Copper and nickel each lost about .8%, while aluminum, tin, and zinc were up by roughly the same amount. Lead ended just about flat.

Gold fell by 3.5% last week, finishing just below $4,000/ounce. A stronger dollar and rising interest rates pressured prices, which still managed to close October out for a third consecutive monthly increase. (For the year as a whole, gold is up a whopping 53%.) Silver, platinum, and palladium all lost ground last week – ending just about flat on the month.

Macro readings and other keys news from the past week:

• In the aluminum market, focus remains on soaring US Midwest premiums – now in the high $.80s. At these valuations, there is more than enough of a margin for Canadian metal to come to the US. But we have yet to hear of any imports making their way south. We suspect that traders are finding it difficult to sell significant tonnage in the spot market at these high numbers. We also suspect the bids they are getting for forward material are considerably lower. Things may be beginning to change, however. On Friday, there were reports that Mercuria had apparently shipped out 30,000 tons of aluminum from Malaysia to New Orleans. We suspect the units are Indian ingots because Russian material is banned. Meanwhile, the European aluminum market is getting tighter on growing concern about the Mozal smelter not coming back online when it’s power contract expires in March of 2026. In addition, Century Aluminum said it was cutting its Icelandic smelter production by two thirds following an electrical equipment failure. Century expects the outage to last for at least six months.
• On copper, Anglo American reported a 9% drop in its production in the first nine months of the year (to 526,000 tons from 575,000 tons reported a year ago) citing a variety of production issues. However, the company kept its 2025 production guidance at 690,000–750,000 tons intact. Glencore said it produced 583,500 tons of copper year-to-date, down 17% from the year prior. Glencore now expects to produce between 850,000-875,000 tons of copper this year, lowering its previous upside range of 890,000 tons. Freeport also announced lower copper and gold sales. But the company did not discuss results in detail, as it waits for an investigation into the Grasberg accident to be completed. And finally, Chile’s Antofagasta said it too, expects 2025 output to come in on the lower side of its 660,000-700,000 ton range.
• The Conference Board’s consumer confidence index slipped to 94.6 in October (consensus 94.2) from a revised 95.6 in September. In the same period a year ago, the index stood at 109.6.
• In housing news, the FHFA housing price index rose by 0.4% month-over-month in August (consensus 0.1%) after a flat reading in July. Separately, the S&P Case-Shiller home price index was up by 1.6% y-o-y in August, down from 1.8% in July.
• Pending home sales remained unchanged in September (consensus 1.2%) after increasing by 4.2% in August. Mortgage activity remains buoyant, although we suspect things may cool off this week given the recent run-up in rates. The weekly MBA mortgage index was up by 7.1%. Purchases were up by 4.5% while the refinance index rose by 9.3%.
• The Chicago PMI hit 43.8 in October (consensus 42.0), up from 40.6 in September.
• Macro numbers out of China released last week were uninspiring. The official PMI fell to 49.0 in October from 49.8 and is now at a six-month low. New export orders tailed off, perhaps “payback for earlier frontloading of orders,” Reuters noted. China’s nonmanufacturing PMI came in at 50.1, a tad higher than the 50.0 reading seen in September. But the construction component (curiously included in the nonservice PMI), slipped to 49.1 from 49.3.
• We are reading that the US construction sector will be a casualty of the government shutdown the longer it drags on. New contracts from the Department of Transportation, the Department of Energy, and the Army Corps of Engineers have all been terminated – thus curbing a significant source of demand for steel and for rebar in particular.
• Nucor reportedly said that it will close its cold-finish bar facility in Monterrey, Mexico, as the company cites an influx of low-priced steel imports that have eroded the company’s competitiveness in Mexico’s market.
• Metals distributor Ryerson and service center Olympic Steel announced last week that they had reached an agreement to merge, creating a $6.5 billion company that will be the second-largest service center in North America.
• Indiana-based MetalX and Kentucky-based Commonwealth Rolled Products also signed an agreement last week to form a strategic partnership that will “further align the two leaders across the aluminium value chain,” MetalX said in a statement. MetalX focuses on nonferrous scrap processing, while Commonwealth produces aluminium rolled products going into the automotive and industrial space.

This week’s US macro readings: With the government shutdown entering its second month and no talks going on, suspension of key reports will likely extend into a fifth straight week. On Monday, we get the S&P final manufacturing PMI for October and October auto sales. But ISM manufacturing and construction spending reports will not come out. On Tuesday, September factory orders, the US trade deficit, and September job openings will not be released either. Similarly, Wednesday’s October ADP employment numbers and the October ISM service reading will not come out, but we should get the S&P service PMI. Initial claims data due Thursday and October US employment data due Friday (including nonfarm payroll data,) will both be shelved as well. However, November consumer sentiment readings and consumer credit for September will be out.

We wish our readers a pleasant week ahead!