Author: Fiona Craig

Western governments pouring billions into critical minerals projects to reduce reliance on China are being warned that uncoordinated intervention could eventually trigger damaging oversupply across global commodity markets, according to executives, analysts and investors cited by Reuters.

Industry recalls historical commodity oversupply crises

The U.S., Europe, Australia and Japan have collectively committed substantial funding toward strategic mineral production, stockpiling programs and supply-chain security initiatives. Market observers caution that without coordinated planning, these efforts could recreate historical commodity gluts such as Europe’s “butter mountains,” Russian aluminium surpluses and Australia’s wool oversupply that destabilized markets decades ago.

“There needs to be some coordination between Western governments as they seek to incentivise new production,” said Brett Beatty of Resource Capital Funds. “The biggest risk is we all do our own thing. We all generate multiples of volumes the world needs and then you just crush everything, because you’ve got an oversupply.”

Governments commit billions despite relatively small rare earths market

The United States has directed more than $20 billion toward critical minerals support programs, including around $10 billion for its Project Vault strategic reserve initiative. Australia has separately committed at least A$13 billion across multiple critical minerals programs and reserve projects.

Despite those commitments, the global rare earths industry remains relatively modest in size. International Energy Agency figures value the rare earths market at roughly $6.4 billion in 2024, even as pledged government support for projects worldwide already exceeds that amount.

Analysts believe governments still hold tools to balance markets

Project Blue consultant David Merriman said growing Western investment is likely to push some rare earth elements into surplus over the coming years, although he expects governments to retain the ability to stabilize markets if needed.

“Government-led stockpiles can stop purchasing, which can have a market-balancing impact and there is only limited capacity supported by price floors or guaranteed purchasing by governments at present,” Merriman said.

Lynas Rare Earths chief executive Amanda Lacaze said current global stockpile volumes remain limited.

“I’m pretty alert to how much rare earths are sitting in stockpiles around the world right now and it’s not very much,” she said.

Australian Resources Minister Madeleine King argued that current investment strategies differ significantly from past commodity support failures.

“This is about a targeted, project-based investment to make something work, for creating secure supply chains for Australian manufacturing, but also for our neighbours and like-minded partners,” King said.

Countries attempt tighter coordination on supply chains

G7 countries are reportedly discussing the creation of a permanent coordination body intended to ensure long-term continuity for critical minerals supply strategies beyond rotating political leadership cycles.

The report also pointed to intervention models in cobalt and nickel markets.

The Democratic Republic of Congo has used export quotas and stockpiles to support cobalt prices and government revenue, while Indonesia previously banned nickel ore exports to encourage domestic refining and processing industries.

Analysts cautioned, however, that extended supply restrictions could encourage industrial consumers to pursue substitute materials or alternative suppliers.

Processing expansion seen as more sustainable solution

Some experts believe expanding mineral processing capabilities at existing operations may present a lower-risk approach than aggressively increasing mine production volumes.

Huw McKay of Australian National University and former chief economist at BHP said Western government support currently resembles seed-stage industrial funding rather than full-scale market intervention.

Projects already underway include gallium extraction facilities backed by Alcoa and Sojitz Corporation in Western Australia, as well as antimony recovery projects led by Trafigura at Nyrstar’s South Australian smelting operations.

Diplomatic breakthrough remains incomplete

Recent reports suggest that the United States and Iran have moved closer to a formal agreement that could extend the current ceasefire, reopen the Strait of Hormuz and ease some economic restrictions on Tehran.

While such a framework would mark meaningful progress toward ending a conflict that has disrupted global energy markets, many of the most contentious issues remain unresolved and are expected to require months of additional negotiations.

Negotiators have agreed a framework, not a final settlement

Following the ceasefire reached in April, discussions between Washington and Tehran have focused on a broad range of disputes, from Iran’s nuclear program to sanctions relief and regional security concerns.

Sources familiar with the talks said negotiators have reached a memorandum of understanding that would halt hostilities and provide a 60-day period to pursue a more comprehensive agreement.

Even so, previous rounds of diplomacy have produced similar optimism without delivering a final breakthrough.

The proposed arrangement has yet to receive approval from President Donald Trump.

Vice President JD Vance acknowledged progress on Thursday, saying: “We’re not there, but we’re very close and we’re going to keep working on it”.

Iran has also indicated that negotiations remain ongoing, with individuals close to the process saying the agreement has not yet been finalized.

The Strait of Hormuz remains central

One of the most immediate goals is restoring navigation through the Strait of Hormuz.

The waterway carries approximately one-fifth of global oil and LNG supplies, making it one of the world’s most strategically important trade routes.

Although reopening the strait is a priority for Washington, it also represents Tehran’s strongest negotiating asset.

Even after a deal is reached, clearing shipping bottlenecks and restoring confidence among maritime operators may take considerable time.

Nuclear negotiations could take years

The future of Iran’s nuclear activities remains perhaps the most difficult issue facing negotiators.

The United States argues that Iran’s enrichment activities could eventually support a nuclear weapons program, while Iran maintains that its activities are entirely peaceful.

Potential compromises have been discussed, including reducing the purity of Iran’s highly enriched uranium stockpiles.

However, negotiators must still address numerous technical and political questions, including inspection rules, enrichment limits, centrifuge technology and the future of existing nuclear facilities.

The lengthy negotiations that produced the 2015 nuclear agreement illustrate just how complex these discussions can become.

Missiles, sanctions and regional conflicts remain unresolved

Beyond nuclear issues, Washington and Tehran remain divided over Iran’s ballistic missile program.

The United States wants restrictions on missile capabilities, while Iran insists its conventional military assets are not subject to negotiation.

Sanctions relief represents another major obstacle.

Iran wants broad economic relief, access to frozen overseas assets and compensation related to wartime damage. The United States has historically been reluctant to grant such concessions.

Meanwhile, tensions involving Israel and Hezbollah continue to complicate efforts to achieve a wider regional settlement.

The road to peace remains uncertain

A ceasefire extension and preliminary framework would undoubtedly represent an important diplomatic achievement.

However, the most difficult questions surrounding nuclear policy, regional security, sanctions, missile programs and Israel’s role have yet to be resolved.

As a result, even if the current negotiations succeed, the process of transforming a temporary truce into a lasting peace agreement is likely to remain lengthy, complex and politically challenging.

Global stock markets climbed to fresh highs on Friday as investors responded positively to reports suggesting progress toward a potential agreement between the United States and Iran. However, European equities continued to lag behind their U.S. counterparts, remaining confined within a trading range that has persisted for roughly three months, according to a recent equity strategy note from Barclays.

Data from the bank showed that both the STOXX Europe 600 (SXXP) and the Euro STOXX 50 (SX5E) remained below the highs reached on 27 February, while the S&P 500 was trading approximately 9% above that level.

A deal could unlock a European market breakout

Barclays strategists believe that a formal agreement leading to the reopening of the Strait of Hormuz, combined with lower oil prices and easing bond yields, could provide the catalyst needed for European equities to move higher.

According to the report, such a scenario “could lead to broadening of performance and help EU equities to breakout from their trading range of the past three months.”

The bank noted that performance differences between sectors that have benefited from the conflict and those that have struggled remain unusually pronounced.

Since tensions escalated, energy, telecommunications, utilities and insurance stocks have outperformed, while consumer discretionary companies, mining groups and banks have generally lagged behind.

Consumer and rate-sensitive sectors could rebound

Barclays argued that the wide valuation gap between winners and losers leaves scope for a sharp recovery in some of the market’s weaker areas if geopolitical tensions continue to ease.

The bank highlighted sectors such as luxury goods, travel and leisure, automotive manufacturers and retailers as potential beneficiaries of a short-covering rally should investors become more optimistic about the outlook.

Many of these industries are particularly sensitive to changes in consumer confidence, interest rates and economic growth expectations, all of which could improve if energy prices retreat and inflation concerns moderate.

Space stocks emerge as a major market theme

The report also identified space and satellite-related companies as one of the strongest emerging investment themes in Europe.

Shares of businesses with exposure to aerospace, satellite communications and launch technologies have rallied sharply ahead of a widely anticipated major IPO in the United States.

Among the companies highlighted by Barclays were Eutelsat (EU:ETL), OHB (TG:OHB), Avio (BIT:AVIO), AAC Clyde Space (USOTC:ACCMF), GomSpace (LSE:0GE8) and Thales (EU:HO).

Investor enthusiasm has been driven largely by expectations surrounding a potential SpaceX public listing, which could become one of the largest stock market debuts ever recorded.

Higher oil prices may remain a risk

Despite the possibility of a relief rally among underperforming sectors, Barclays cautioned that any gains could prove temporary.

The bank’s macroeconomic team continues to expect oil prices to remain elevated for an extended period, keeping inflation risks in focus and potentially limiting the scope for lower interest rates.

At the same time, Barclays pointed out that previous energy shocks have often had only a temporary impact on crude markets.

“Energy shocks in recent decades have not had a lasting impact on oil, with prices falling sharply once the dust settled and excess supply increasing over time,” Barclays said, noting that current market positioning does not appear to fully reflect this historical pattern.

Fund flows reveal mixed investor sentiment

Investor flows also suggest a more cautious tone beneath the surface.

Global equity funds attracted net inflows of just $2.4 billion during the week, ending a streak of eight consecutive weeks of strong inflows. In contrast, fixed-income funds drew $30.5 billion.

Since the start of the year, bond funds have attracted $331.2 billion, while equity funds have gathered $361.0 billion, narrowing the gap between the two asset classes.

Within equities, Europe recorded net outflows of $2.3 billion both for the latest week and on a year-to-date basis.

Funds focused on Europe excluding the UK experienced a seventh consecutive week of withdrawals, losing $2.2 billion in the most recent reporting period.

Barclays also observed a continuing divergence in investor behaviour, with U.S.-domiciled funds reducing exposure to European stocks while European-based investors have continued buying U.S. equities for nine consecutive weeks.

Markets await key U.S. economic data

At the sector level, technology was the only global sector to record net inflows during the week.

Industrials and materials experienced the largest withdrawals, while within Europe every sector saw outflows except healthcare. Financials and energy stocks recorded the weakest investor demand.

Looking ahead, markets will closely monitor several important U.S. economic releases next week.

According to Bloomberg consensus estimates cited by Barclays, the ISM Manufacturing Index for May is expected to come in at 53.2 on 1 June, compared with a previous reading of 52.7.

Investors will also focus on U.S. non-farm payrolls data due on 5 June, where economists expect job growth of 95,000 compared with 115,000 in the prior report.

The outcome of these releases, together with developments surrounding a potential US-Iran agreement, could play a significant role in shaping market sentiment as investors assess the outlook for growth, inflation and interest rates.

Processor market expected to expand significantly

Wolfe Research believes the rapid adoption of artificial intelligence technologies will create a major growth cycle for the processor industry, forecasting that the global CPU opportunity will expand by roughly 30% through 2028.

The firm argues that access to advanced manufacturing capacity, particularly at TSMC, may prove more important than pure product performance in determining winners and losers across the sector.

Orchestration computing emerges as a major growth theme

One of the strongest opportunities identified by Wolfe is the emergence of orchestration CPUs, which are expected to become increasingly important as AI infrastructure evolves.

The firm expects demand to accelerate sharply by 2028 as Nvidia’s Rubin Ultra architecture pushes CPU-to-GPU deployment ratios toward parity.

Despite this opportunity, Wolfe believes the segment will remain largely controlled by companies that already dominate GPU and accelerator markets.

ARM expected to capture growing influence

Wolfe also sees substantial momentum behind ARM-based processors within agentic AI workloads.

Thanks to advantages in energy efficiency and parallel processing performance, ARM architectures are projected to secure between 50% and 75% of the agentic CPU market.

If ARM captures half of that segment, its share of the broader CPU industry could rise from approximately 15% today to 45% by 2028.

AMD positioned for outsized gains

Among leading semiconductor companies, Wolfe views Advanced Micro Devices (NASDAQ:AMD) as the standout beneficiary of the AI-driven CPU expansion.

Server CPU revenue is projected to increase from $17 billion in 2026 to $44 billion by 2028, creating a significant earnings opportunity.

The firm estimates AMD’s earnings power could reach between $25 and $30 per share by 2028.

Intel faces a more challenging path

Intel (NASDAQ:INTC) is expected to benefit from broader industry growth, but Wolfe believes the company will continue to lose market share across multiple categories.

Competitive pressure from internally developed processors such as Google’s Axion, combined with growing adoption of ARM-based alternatives, is expected to weigh on Intel’s position.

Nevertheless, the firm still projects Intel’s server CPU revenue to nearly double by 2028.

Nvidia remains the dominant force

Nvidia (NASDAQ:NVDA) is expected to remain the largest player in the market, with CPU shipments surpassing four million units this year.

Agentic CPU revenue alone could climb from $6.6 billion in 2026 to nearly $25 billion by 2028.

However, Wolfe notes that CPUs will represent only a relatively small contributor to Nvidia’s earnings compared with its dominant accelerator business.

Arm Holdings gains from several trends

Arm Holdings (NASDAQ:ARM) could benefit from multiple sources of growth, including royalties from datacenter processors, increasing adoption of ARM-based AI systems and revenue from future proprietary chip initiatives.

Wolfe estimates that these opportunities could support earnings power of approximately $4.50 per share by 2028.

AI demand supports the broader semiconductor ecosystem

The anticipated expansion of AI computing is expected to benefit not only chip designers but also semiconductor manufacturing equipment suppliers.

Wolfe forecasts roughly 20% growth in wafer demand over the next two years, although GPUs and AI accelerators are still expected to account for the majority of advanced manufacturing requirements.

Overall, the firm sees artificial intelligence as a powerful catalyst that could reshape the competitive landscape of the CPU industry over the remainder of the decade.

Crude retreats as traders focus on U.S.-Iran negotiations

Oil prices slipped on Friday and remained on track for substantial weekly losses as investors increasingly priced in the possibility of a diplomatic breakthrough between the United States and Iran.

Brent crude fell 1.2% to $92.55 per barrel, while U.S. WTI crude dropped 2.0% to $87.11 per barrel during early trading.

If current levels hold, both benchmarks are expected to record weekly declines of roughly 10%, their steepest losses since the beginning of April.

Draft agreement boosts market confidence

Recent reports suggest that U.S. and Iranian officials have reached a preliminary framework that would extend a ceasefire by 60 days while discussions continue on nuclear issues and regional stability.

The proposal still awaits approval from President Donald Trump, but markets have already begun reacting to the prospect of reduced geopolitical tensions.

Investors view the potential agreement as a step toward restoring more normal shipping conditions through the Strait of Hormuz and reducing the risk of near-term supply disruptions.

Supply risks remain despite improving sentiment

Although diplomatic progress has improved sentiment, shipping traffic through the Strait of Hormuz remains far below pre-conflict levels.

That continued disruption has prevented risk premiums from disappearing entirely from the oil market.

According to ING analysts, “The market has increasingly priced in a resolution this week. Therefore, any confirmation of a deal that reopens the strait means that significant further downside is likely limited, particularly during the early stages of a ceasefire.”

They added that “The market is more vulnerable now than it was pre-war, given the significant inventory drawdowns we have seen over the last 3 months.”

Headlines continue to drive sharp market swings

Recent trading has been characterized by elevated volatility as investors react to changing developments surrounding the ceasefire process.

Prices briefly moved higher on Thursday after reports of renewed military activity involving U.S. and Iranian forces, but the rally quickly faded as attention returned to diplomatic efforts.

Inflation and growth concerns remain in focus

Beyond geopolitical developments, markets continue to monitor economic indicators that could influence energy demand.

Recent U.S. inflation data showed stronger-than-expected price growth, reinforcing expectations that the Federal Reserve may delay any shift toward lower interest rates.

At the same time, revised GDP figures pointed to softer economic growth during the first quarter, raising concerns that slower activity could eventually weigh on fuel consumption.

Attention turns to next developments

With oil prices under pressure and market sentiment closely tied to diplomatic headlines, investors are waiting for confirmation on whether the proposed ceasefire extension will move forward.

Until then, crude markets are likely to remain highly sensitive to developments in both the Middle East and the broader global economy.