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MORNING BID EUROPE - Baseball, golf and Nobel Prizes
Wayne Cole gives us a look at what the future holds for European and global markets. Today, U.S. president Donald Trump is in Tokyo. The talk revolves around baseball, golf, Nobel Peace Prizes and the odd deal involving rare earths. This is at least a welcome change from the usual invective of the trade war and it keeps the hope alive for a rapprochement between China and the United States later this week. The Asian markets have been able to consolidate the majority of Monday's gains, with all three indexes nearing record highs. Data showing that the economy exceeded forecasts for the third quarter was a major boost to the latter. China's Shanghai Index also broke through 4,000 for first time since 2015. Beijing has signed a free-trade agreement with Southeast Asian bloc ASEAN. The European and Wall Street Futures are largely flat. This is not surprising, given that the mega-caps have much to live up to this week. The Street is expecting high expectations, given that 85% of S&P companies have reported so far and surpassed the Street in EPS. Options suggest that share prices could move up or down by 6% depending on the results. Bonds and the dollar also await with bated breath to see how dovish or not the Federal Reserve will be on Wednesday. Investors are waiting to see if their bets on another cut in December and two next year will come true. Please, stop reducing the balance sheet of the Fed. Please, no more QT. The Bank of Japan is betting on no rate increase for Thursday. However, there is the risk that at least two members will vote in favor of a rate rise due to stubborn inflation. A real hike would trigger a massive sell-off of the dollar/yen. This suggests that the risk-averse BOJ may be laying the foundation for a tightening by December or January. The following are key developments that may influence the markets on Tuesday. - ECB bank lending survey Dallas Fed Services Survey, U.S. Conference Board Consumer confidence, Richmond Fed Manufacturing Index for October, August house prices
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Oil prices fall as OPEC plans to increase output offset US-China trade optimism
The oil prices fell Tuesday, as OPEC’s plan to increase output countered optimism over a possible U.S. China trade deal. Investors also weighed the effectiveness of sanctions against Russia. Brent crude futures dropped 3 cents at $35.59 per barrel by 0359 GMT. U.S. West Texas Intermediate Crude Futures fell 5 cents to $61.26. ANZ's morning note stated that traders weighed progress in U.S. China trade talks as well as the broader outlook of supply. Four sources familiar with the discussions said that OPEC+ is in favor of a modest increase in output for December. This will act as a downward pressure on prices. After reducing production to support the oil markets for several years, the group began reversing these cuts in April. The prospect of a deal between President Donald Trump and Xi Jinping, the two world's largest oil consumers, who are due to meet in South Korea on Thursday, is expected to support the market. Beijing hopes Washington will meet them halfway in order to "prepare high-level interaction" between the U.S. and China, said Foreign Minister Wang Yi during a telephone call with U.S. Sec. of State Marco Rubio on Monday. Brent and WTI both registered their largest weekly gains in June after Trump, for the first time during his second term, imposed sanctions against Russia related to Ukraine, targeting Lukoil, and Rosneft. Lukoil, Russia's 2nd largest oil producer, announced on Monday that it would be selling its international assets in response to the sanctions. The Russian company has taken the most significant action to date in response to the Western sanctions imposed over Russia's conflict in Ukraine that began in February 2022. Fatih Bibil, Executive Director of the International Energy Agency, said that sanctions against oil-exporting nations could increase crude prices but their effect would be limited due to surplus capacity. Participants on the market generally believed that sanctions would have a short-term effect. Haitong Securities stated in a report that any medium-to-long-term losses of supply looked limited and an oversupply was likely to put pressure on the prices. Ashitha Shivprasad reported from Bengaluru, and Sam Li from Beijing. Sonali Paul and Thomas Derpinghaus edited the article.
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Singapore GasCo talks to LNG suppliers about long-term contracts
Alan Heng, CEO of Singapore's GasCo, said that the company is in negotiations with suppliers of liquefied gas for long-term agreements. The company will be operational by January 1, 2026. It is a government-owned enterprise that was created to centralise gas procurement and supply to the power sector of the city-state. Heng said that GasCo would be prepared to begin procurements on a short-term basis by then, but it wanted to establish a series long-term contracts to ensure supply. He said: "We'll occasionally take advantage of the spot markets, but we will do so with great care, as we don't want to see power prices in Singapore go up 50% or 100% because (we) are not contracted." Heng said that the next steps are to go to the market, build a portfolio, and diversify the supply. He said that it was important to have a portfolio mix between long-term and shorter-term contracts. He added, "And if there is enough longevity in the prices we can get affordable prices for a long period of time." It might not be the lowest price at any given time, but it will be consistently cheaper over a period of five years than if you went to the spot markets. GasCo will also be able to purchase supplies from the United States. Heng said that the U.S. would supply about 35-40% of global LNG. "So, invariably you will need to secure some U.S. Liquefied Natural Gas," he added. "We haven't yet figured out who is supplying us with U.S. Liquefied Natural Gas... but we will have a significant amount of U.S.LNG in our portfolio." Heng said that the company has been working with the Energy Market Authority to develop contingency plans in the case of any potential disruptions in power supply. For example, if a gas pipeline from neighbouring countries was shut down in large quantities.
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Iron ore gains continue on the back of new proposals to limit China's steel production
The market was buoyed on Tuesday by China's proposal to limit steel production capacity in order to balance supply and demand. As of 0309 GMT, the most-traded contract for January iron ore on China's Dalian Commodity Exchange was trading 1.35% higher. It cost 788 yuan (US$110.63) per metric ton. The benchmark iron ore for November on the Singapore Exchange rose 0.05% to $105.75 per ton. Analysts from ANZ said that higher steel prices created room for the steel market to increase its purchases of iron ore, and other raw materials used in steel production. China had on Friday unveiled a proposal to implement a stricter steel capacity exchange plan. According to the new plan the Chinese Ministry of Industry and Information Technology stated that the addition of new capacity for steel in key areas as well as the transfer of capacity from non-key regions to key areas and the capacity transfer between key areas will be strictly prohibited. China is grappling with a weak domestic market due to a long-running property crisis. This has led to a mismatch between supply and demand, which has eroded the steel margins. Due to environmental requirements, the steelmaking hub of China Tangshan has also decided to restrict blast furnace production by 30% for a period of four days beginning October 27. Hexun Futures, a Chinese financial information website, reported that the cap would affect 91,000 tonnes of hot metal production per day at local steelmills. Galaxy Futures, a Chinese broker, says that although the demand for crude steel overseas is still relatively high, domestic demand has weakened, making it unsustainable to maintain iron ore prices in the ferrous metals industry. Coking coal and coke both increased by 0.32% and 0.033% respectively. The benchmarks for steel on the Shanghai Futures Exchange are mixed. Hot-rolled coil and rebar both increased by 0.58%. However, wire rod and stainless steel declined by 0.59%. (Reporting and editing by Ronojojo Mazumdar; $1 = 7.1230 Chinese yuan).
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Siemens Gamesa Halts Port of Esbjerg Offshore Wind Nacelle Plant Plans
Siemens Gamesa has confirmed it has scrapped plans to build an offshore wind turbine nacelle factory at Denmark’s Esbjerg Port.The offshore wind turbine manufacturer confirmed it will not proceed with the development of the nacelle plant at the port of Esbjerg at this time, given the current market opportunities.“Siemens Gamesa has maintained a longstanding presence at the Port of Esbjerg, which is a strategically important location for our offshore wind operations, also in the future.“Like in any other place, we continue to evaluate potential investment opportunities; however, given the current market conditions, any such decision will require greater clarity and stability in the industry,” a spokesperson for the company said.To remind, earlier in October, Danish wind turbine maker Vestas also shelved plans to open its biggest offshore wind turbine factory in Poland, citing weaker-than-expected demand in Europe.Vestas Drops Plans for Second Polish Offshore Wind Turbine Plant
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Venezuela to Suspend Energy Agreements with Trinidad
Venezuela's oil ministry will ask the presidency to suspend a wide cooperation agreement with Trinidad and Tobago for energy development, including joint gas projects in negotiation, the South American country's oil minister said.Trinidad's previous government had been planning numerous joint gas projects with Venezuela, including the 4.2 trillion cubic feet Dragon field to be developed by Shell and the National Gas Company of Trinidad, for which it received a U.S. license earlier this month.However, the new administration of Prime Minister Kamla Persad-Bissessar has not been seen as an ally by Venezuelan President Nicolas Maduro.Since taking office in April, her new government has had a close relationship with the administration of U.S. President Donald Trump, while tensions between Washington and Caracas have escalated.The current relationship between Trinidad and Venezuela, which could complement each other's energy needs, is "hostile," oil minister Delcy Rodriguez said in a broadcast message."In consequence, all gas agreements between Venezuela and Trinidad would be suspended," she said, adding that President Maduro is expected to receive the suspension request soon.Venezuelan officials have criticized the authorization Trinidad received from the U.S. to negotiate the flagship Dragon project with U.S.-sanctioned Venezuela, and said Trinidad would have to pay for any gas supplies.The Dragon development, which lies in Venezuelan waters, has faced long-standing delays amid frequent U.S. policy changes since Washington imposed energy sanctions on Venezuela in 2019.Trinidad's government, Shell, NGC and BP, which are involved in various projects' that include Venezuela, did not immediately reply to requests for comment.Shell is separately developing the Manatee gas project, which crosses the maritime border into Venezuela but had received permission from the Maduro government to be developed on the Trinidad side independently. It was not immediately clear if that project could also be at risk.(Reuters)
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Copper prices rise as US-China optimism persists
The copper price edged up on Tuesday as the market was buoyed by the prospect of a U.S. China trade agreement. A meeting between the two Presidents is just around the corner, which also helped boost the market's sentiment. As of 0250 GMT, the most active copper contract at the Shanghai Futures Exchange rose 0.18% to 88,100 Yuan ($12,368.38), per metric tonne. The benchmark copper price for the three-month period on the London Metal Exchange remained flat at $11,030.50 per ton. The Shanghai and London contracts both extended their gains from the previous day and hovered around 17-month highs. Over the weekend, U.S. officials and Chinese officials hammered out a framework for trade that would deescalate the recent tensions. President Donald Trump and Xi Jinping will decide this later in the week during their meeting in South Korea. Investors are confident that Trump will sign the trade agreement with China. This would mean a reduction in trade tensions. The Chinese yuan has continued to gain strength against the U.S. Dollar. Chinese buyers can now buy commodities that were previously priced in dollars. Nickel, the second-most traded base metal in SHFE, suffered the largest loss. It fell by almost 1%, trading at 121.17 yuan per ton. Nickel gained for three sessions in a row before reversing course early on. Oversupply has continued to plague the battery metal and stifle any upward momentum. There is simply too much nickel in the world. "Whenever nickel gains, it's a good time to cash out, as nobody knows if those gains will continue," said a nickel trader, who requested anonymity because the person is not authorized to talk to the media. The weekly report of SHFE shows that the delivered nickel stocks have increased for a third week in a row, by 4.81%. Zinc rose 0.27% while lead fell 0.60%. Aluminium and tin were trading near their flatline. Other LME metals saw a slight increase in aluminium, a decrease in zinc, 0.15% drop for lead and nickel, and little change for tin. Tuesday, October 28, DATA/EVENTS(GMT)1100 France Unemp SA Class-A September 1400 US consumer confidence October
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Trump and Takaichi reach agreement on critical minerals, rare earths, and supply
The White House announced that U.S. president Donald Trump and Japan prime minister Sanae Takaichi signed a framework deal on Tuesday to secure the supply of rare earths and critical minerals through mining and processing. Both countries want to strengthen the supply chains of rare earths, which are used in everything from electronics to cars and renewable energy. The statement stated that the U.S., Japan, and other countries will cooperate by using economic policy tools, as well as coordinated investment, to develop a diversified, liquid and fair market for rare earths and critical minerals. China processes 90% of rare earths in the world. It has recently increased export restrictions, adding new elements to its control list. They have also tightened their oversight over foreign producers who rely on Chinese material. In contrast, the U.S. has only one rare earth mine that is operational and is racing to secure minerals essential for electric vehicles and advanced manufacturing. Trump will meet Chinese President Xi Jinping Thursday. In their agreement, the U.S.A. and Japan agreed that they would streamline and deregulate processes and timelines for obtaining permits and securing rare earths and critical minerals, and also address unfair trade practices and non-market policies. The White House added that both countries would look at a stockpiling agreement that would be mutually beneficial and would work with other international partners in order to ensure the security of supply chains. (Reporting from Katya Golubkova and Kanishka in Washington DC, and editing by Himani Sarkar & Stephen Coates).
After the attack on Russian energy installations, oil gains continue
Oil prices continued to rise on Monday, as investors weighed the potential impact of Ukrainian drone strikes on Russian refineries which could disrupt Russia's crude and fuel exports. They also looked at U.S. fuel demand growth.
Brent crude futures were up 36 cents or 0.5% to $67.35 per barrel at 0632 GMT, while U.S. West Texas intermediate crude was $63.05 per barrel, an increase of 36 cents or 0.6%.
Both contracts gained more than 1% last week as Ukraine stepped up attacks on Russian oil infrastructure, including the largest oil exporting terminal Primorsk and the Kirishinefteorgsintez refinery, one of the two largest refineries in Russia.
In a note referring to the attack in Primorsk, JPMorgan analysts headed by Natasha Kaneva stated that "the attack indicates a growing willingness" to disrupt international oil market, which could add upward pressure to oil prices.
Primorsk is the largest port of western Russia and has a loading capacity of about 1,000,000 barrels per day.
Surgutneftegaz operates the Kirishi refinery which processes 355,000 barrels per day (bpd) of Russian crude oil, equivalent to 6.4%.
Tony Sycamore, IG markets analyst, said that despite concerns about oversupply and OPEC+'s plans to increase output, "if we are seeing a shift in strategic focus by Ukraine to Russian oil exporting facilities - this brings upside risks to our forecasts."
Radiy Khabirov, the regional governor of Bashkortostan in Russia, said that despite Saturday's drone attack an oil company will continue to produce at its current levels.
As U.S. president Donald Trump reiterated Sunday that he was willing to impose sanction on Russia, Europe must act in a manner commensurate to the United States.
Investors will also be watching the U.S. and China trade talks that began in Madrid on Sunday, amid Washington's demand that its allies impose tariffs on imports of Chinese oil due to its purchase by China.
The Federal Reserve will likely cut interest rates at its meeting on September 16-17. However, last week's softer data about job creation and inflation in the U.S. was a cause for concern. (Reporting and editing by Muralikumar Anantharaman, Christian Schmollinger and Florence Tan)
(source: Reuters)