AI’s influence reaches beyond the Nasdaq Composite

AI and copper

Nvidia dominated headlines last week with their first-quarter earnings report set for release on Wednesday, once again beating expectations. Over the last year, Nvidia’s stock price has more than tripled over the recent excitement around AI and increased computing demand.

This excitement has affected more than just Wall Street’s current AI poster child. With AI’s computing process being energy intensive, economists are forecasting an increased need for countries worldwide to invest in its supporting infrastructure. Copper is a crucial component to energy-related infrastructure because of its conductive properties and substantial role in the green energy transition. Year-to-date, copper is up nearly 25.00% and just hit an all-time high on Monday when it broke past $11,000 per ton. While long-term demand forecasts have risen for copper, the supply side of the market has largely been what has driven this commodity to record highs.

China, which consumes nearly half of the world’s copper, experienced smelter shutdowns due to constrained ore supply, lowering long-term supply forecasts. Meanwhile, high current inventories in China’s spot market have led traders to short the commodity. In contrast, the U.S. has lower copper stockpiles, creating the conditions for a short squeeze on Monday and driving new highs. Despite this short-term market friction, Caryle’s Jeff Currie predicts copper will reach $15,000 per ton within the next two to three years.

The mythical rate cut

Elsewhere in the market, rates have risen as Fed officials continue to emphasize uncertainty around future rate cuts, pushing the first cut further into the distance. At the start of the year, projections had the first cut falling around this time. Comparatively, that first rate cut is just as distant today as it was in the beginning of the year. This sentiment was apparent in the Fed’s meeting minutes released on Wednesday. Fed Governor Chris Waller echoed this message in a speech saying that he would need to see multiple months of lower inflation reports until he thinks a cut would be appropriate. Waller also questioned if the Fed would need fewer rate cuts to get to a neutral point where the Fed is neither restrictive nor loose, insinuating rates may be higher than expected in the long-term. Other economies, like the U.K. and the E.U., are gearing up for the pivotal first cut to materialize in the coming weeks. Consequently, the dollar strengthened as markets seem eerily like the fall of last year, when the increases in expected risk premiums drove rates past 5.00%.

In the week ahead

Next week, we will see the U.S. Consumer Confidence Index release on Tuesday, the preliminary release of the first quarter GDP, and the April PCE report on Friday.