Summary:

President Trump has announced a trade deal with Japan opening the country to US sales of cars, trucks, rice and other agricultural food stuff. In return for a 15% tariff on Japanese exports (down from 25%) Japanese companies etc., plan on investing US$550B in the US. Importing US rice will alienate protected rice farmers. The Japanese auto stocks rose sharply as they face 15% tariffs now versus 25% tariffs before and can keep selling into the US and make money and keep market share. Even with this deal Japan is likely to continue to have a trade surplus of some size (US$70B surplus in 2024). US car sales in Japan may work in large cities but not in rural areas. I am also suspicious of the US$550B number. Over how long will this investment take, will it really create new high paying US jobs or do they just buy US Treasuries and say they met their commitment. Yes, I am cynical this is a real deal for significant high paying jobs in the US. A Trump tariff political victory lap but what is real thereafter?

Crude oil is weakening as global demand is sluggish.

• The ineffective and bumbling EU put on its 18th package of sanctions against Russia. It lowered the price cap to BUY Russian oil from US$60/b to $US47.60/b. Who cares when China and India are buying their crude at much higher prices. Nice announcement but it will have no impact. They are also banning imported Russian products; again a non-issue. Bottom line – after 18 sanction packages Russia is selling record amounts of crude and products, just not to most EU members. Some are ignoring the EU rules such as Hungary.
• OPEC’s June increase was not 411 Kb/d but a much lesser number of 220 Kb/d. Global demand is weaker this year due to the economic uncertainties and tight wallets for stretched consumers. We feel that we will see WTI prices below US$60/b in the coming weeks. Today the price of WTI is at US$64.82/b (down from US$65.62/b last week) as global demand wanes and global inventories are building. More on this below.

President Trump is now very frustrated with President Putin for not working to end the war in Ukraine. Instead more deadly drone and missile attacks against Ukrainian civilians are occurring and diplomacy is seeing no progress. Trump thought he had a deal weeks ago and now is making scathing attacks against Putin. HIs 50 day window for a deal is ticking away and Trump is getting more frustrated with Putin’s intransigence and continued aggressive bombing of Ukrainian civilian targets. Can’t Russia’s military find Ukrainian military targets to hit?

The ongoing US stock market rally (new highs for S&P 500 and NASDAQ but not the Dow Jones) has been focused on the AI and tech sectors and is very narrow in leadership. NVIDIA has crossed a market cap of US$4T), a new record market cap for any stock. We saw this same gapping up in early February 2025 just before the Dow fell from 45,100 to 36,600 or a decline in 2.5 months of 19%. With sluggish economic data especially in the consumer areas, we suspect we could see a 20%+ general stock market correction (led by tech) over the coming weeks. Caveat Emptor! More on this below.

Market greed is getting crazy again with new gambling investors chasing the stocks mentioned on the chat lines, like Reddit obsessed traders. If people jump on a MEME name that has high short positions then the retail speculators buy aggressively and the shorts have to cover at higher and higher prices. Names now in vogue are: Kohl’s (49% short position before the run from US$10.42 per share to $21.39 per share yesterday – or up 105% intraday). It closed up 38%. GoPro (up 63%) and Krispy Creme (up 33%). This crazy investing is lemmings chasing lemmings. Maybe it works for some but those are usually the early birds with the rest taking a pounding. We saw this play out before when the Dot-Com bubble ended. Valuations are now higher than at that time and priced for perfection. Greed can move to Fear if some shock comes to the current market casino.

This week’s Eye On Energy Details:

Current Challenges:

Challenges for President Trump and his administration over his second 100 days will be tough: He needs success on these issues before the end of this timeline:

• Be able to fund the current deficit and renew maturing Treasury issues when foreign investors worry about US trade policy and support of NATO. China and Japan have been selling some of their substantial Treasury issues.
• The current deficit looks to be US$2.2T for this fiscal year, despite June’s US$26B surplus due to tariff revenues. Markets are watching to see how upcoming Treasury offerings do. So far so good! US Interest rate payments are now over US$1T and could rise much more as the debt raised 2, 3 and 4 years ago was at much lower cost. The renewal will add to the interest cost of this budget.
• Trump has announced that he would impose a 50% tariff on copper imports as he works to get more of this critical metal produced in the US (now only 50%). Canada gets smacked down again as Canada exports $4.8B of copper concentrate (99% of US imports). Copper prices jumped and were at US$5.50 per pound yesterday up from US$4.23 per pound just a month ago. Next on Trump’s hit list is the pharmaceutical industry where he plans at a “very, very high rate, like 200%,” if deals are not done to lower US prices significantly.
• Get peace negotiations started between Russia and Ukraine and a ceasefire implemented to end the weekly death toll exceeding 5,000 personnel from both sides (military and civilian). The US has pushed NATO countries to cover the needed funds and military equipment for Ukraine. The US will provide the weapons and NATO countries will pay the US for them. Over US$2T of new weapons for Ukraine are being talked about, including Patriot defensive missiles. In the meantime North Korea is sending an additional 30,000 specialized units to the Russian/Ukrainian front. Battle Experience?
• China is now signalling to the US that no trade talks are possible without US concessions on Taiwan. With China agreeing to sell more rare earth critical minerals needed for high tech equipment built in the US, Trump has reversed his decision to hold back sale of NVIDIA and AMD high end semis to China. Those stocks have added to their runs due to this reversal. A bit of progress but not enough.

I remain concerned that other Geopolitical Challenges could take place and be the ‘Black Swan’ to take the general stock markets to our downside targets.

Our expected downside targets are:

• Dow Jones Industrials Index 35,000 (now 44,884)
• S&P 500 4,800 now (now 6,340)
• NASDAQ 15,000 (now 20,940)
• S&P/TSX Energy Index 230 (now 270)
• WTI US$57-59/b (now US$64.82/b)

We see WTI rising after the next dip and the potential issues that could drive prices quite high are:

• If Iranian sleeper cells make an attack within the US.
• Russia has gathered 110,000 troops near the strategic city of Pokrovsk, a major logistic hub for rails and roads needed by Ukrainian forces in the east of the country. An expansion of the war would bring back a war premium to crude oil. New US secondary sanctions could harm Russian oil sales.
• Global growth in late 2025 into 2026 exceeds supplies (Venezuela sanctions impacting as well).
• Lack of production growth from the non-OPEC world.
• US Production levels declining as seen in this week’s EIA report.

The Trump tariffs are just being seen this month and will be more readily apparent in the stores over the next few months as the tariff levels are firmed up. Both Walmart and Target have warned of the cost of new inventory and much higher prices. Some economists see tariff prices impacting households by US$2,800 by year end. Just think about the cost of clothing, cereals and berries as easy items to see the tariff price impacts. China is now feeling the tariffs and weaker exports of products, hurting energy demand.

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