The Big Rally Was More About Delayed Santa Than Venezuela
First, we take Caracas, then we take Nuuk.
Key Takeaways
Catch-Up Trade Extends Santa Rally: Global markets started the year on a big positive note. We likely would have seen a surge yesterday with or without the Maduro capture, especially since seasonally speaking, we are still in the throes of the Santa Rally (which did get stuck in the chimney through much of late December, so yesterday was probably nothing more than a classic catch-up trade).
Copper Hits a New Record: Copper futures have powered ahead by +3.1% to a fresh record of $13,388 per ton. The beauty about the red metal is that it is in a chronic supply-deficit backdrop and demand is being fueled by Chinese stockpiling, expansion in AI spending, global military expenditures, and the overall upgrading to the power grid (including renewable energy installations). Not to mention being a critical part of the supply-chain security theme, which was underlined by the decision of the U.S. Geological Survey to add copper to its list of critical minerals last November — the price has powered ahead by over +20% since that move.
Tariffs Can Actually Be Disinflationary: There is less tariff inflation than meets the eye. Two scholarly reports were just published on this effect — by Northwestern and by San Francisco Fed economists. The latter actually proved that historically, when all is said and done, the indirect effects actually swamp the initial direct impact and lead to lower, not higher, inflation. Hence, our decision is to stick with our heavy exposure to the bond market.
