Quick Bite – Will Trump’s Big Beautiful Bill Affect Commodity Prices?

Last week, President Trump forced his Big Beautiful Bill through a divided congress to celebrate the 4th of July holiday. The nearly-900 page bill includes a tax-cut and spending package that is projected to increase the national debt by $3.3 trillion over a decade.

Cost-savings to reduce massive government debt was nowhere in sight. Not long ago, fiscal conservatism was a core Republican pillar, but the post-Trump world is a different beast altogether.

Source: The Commodity Report

The large debt increase should work as a tailwind for higher equity prices and a weaker USD. To pay for the tax breaks, the bill makes steep cuts to Medicaid, food aid programs and clean energy funding. Share prices of companies within these sectors already faced headwinds since key aspects of the bill became evident. The removal of a $7,500 electric vehicle tax credit is set to be a headwind for EV sales and stocks like Tesla.

Expect the US wealth gap to widen even further

Source: FT

Companies will get expanded provisions on expenses, including 100% bonus depreciation, which allows business to deduct expenses immediately rather than over three years.

For commodity prices, the bill shouldn’t change too much – but are expected to veer positive.

Source: L Kuemmerle Report

From what we can see now, inflation shouldn’t be too much of a concern – the tax cuts could work as a slight consumer-tailwind, but nothing that should worry the Fed and J Powell unduly. The once again increased debt burden provides another argument for gold, which functions as a hedge against surging market liquidity and currency printing.

Historically, gold thrives on political and economic uncertainty. Gold has risen more than 25% this year, driven by geopolitical and trade tensions. Recently, global exchange-traded funds (ETFs) backed by gold bullion reported their highest monthly inflows for more than 3 years. Holdings reached levels not seen since the peak of the pandemic era in October 2020. Central banks keep buying gold. And a weakened USD is usually good for commodity prices.

Source: Yardeni Research

Inflation expectations appear to be declining, which will likely free up the Fed to cut rates later in the year.

Consensus is that the US dollar will continue to weaken – it has fallen 10% over the last 6 months against a pool of other currencies. Even if an increased debt burden leads to a weaker USD, we view being short the currency as a crowded trade – it seems everyone hates the USD at present. Over the long-term, yields on US debt should weaken in order assist refinancing the increasing debt burden. If that doesn’t happen organically, it will likely happen through Quantitative Easing.

The Treasury 10-year yield rose to 4.35% last Thursday following the better-than-expected June employment report. We expect the yield will range between 4.25% and 4.75% through to the end of this year. A rise above 4.75% in 10-year Treasuries will surely test the equity market.

For Trump himself, the bill is a major political win. The bill allows him to pass many laws he couldn’t only with his presidential powers alone. But there are lots of doubters out there. US debt levels have built up so exorbitantly over the last 20 years that there are fears that it is putting the US on an unsustainable path. By pushing up US debt levels, it is forcing up the amount of interest that the US must pay on its debt going forward, placing the bond market on a slippery slope.

In the meantime, the once-feared recession seems to have all but disappeared from forecasters’ minds, while the key benchmark US index (the S&P 500) hits record highs.

Source: Yardeni

Continuing the good news, US analysts have reversed course and stopped lowering their 2025 and 2026 estimates for S&P 500 companies’ operating earnings per share in recent weeks. They are currently expecting $263 this year and $300 next year. Forward earnings rose to yet another record high during the July 3 week. That’s good news for the share market, and good news for commodities.

Source: Yardeni Research