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MORNING BID EUROPE - Fed in the spotlight while Warsh faces Congress
Gregor Stuart Hunter gives us a look at what the future holds for European and global markets. Brent Crude is soaring around $85 per barrel as U.S. Fed chair Kevin Warsh prepares for his testimony before the 'Congress in two days. No pressure then. The?U.S. Warsh will likely be asked questions about the plans of the central bank for its balance sheet by members of?House Financial Services Committee. Fed Governor Christopher Waller's hawkish comments this week have increased the odds that there will be more rate increases this year, perhaps even as early as this month. This prospect, along with the?third consecutive night of strikes against Iran by the U.S. Military and the possibility of a U.S. 20% fee for cargo ships crossing the Strait of Hormuz roiled Asian markets on Tuesday. Brent futures rose to their highest level since mid-June while S&P500 e-minis futures fell 0.2%. MSCI's broadest Asia-Pacific index outside Japan fell 1.2%. This was primarily due to declines in shares from Taipei and Seoul. Even though the 'bear market' in South Korea continues -- the Kospi index had its worst two-day drop on Tuesday since the beginning of the Iran War -- the index remains one of the best performers this year. Early European trades saw pan-regional futures down by 0.9%. German DAX Futures also fell by 0.9%. FTSE Futures dropped 0.4%. Chinese stocks performed better than the majority of other countries after data showed that exports soared in June. This was boosted by demand for data centre computing power and chips to fuel global AI boom. In Tokyo, Finance Minister Satsuki katayama stated that Japan could consider changing the strategy of its 'giant Government Pension Investment Fund' if the investment climate changes dramatically. This comes after officials had said they would look for ways to encourage more investments in domestic financial assets. She did not provide any further information. According to a White House official, Trump's administration has also announced that it is blocking American citizens from the Democratic Republic of Congo to travel?back to America on commercial flights as the Ebola outbreak intensifies. Key developments on Tuesday include: company earnings from JPMorgan Chase and Bank of America Corporation; economic data for the U.S., including June CPI, core inflation, and debt auctions in Germany. (Reporting Gregor Stuart Hunter, Editing Kate Mayberry).
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Oil prices rise by one month as US and Iran intensify attacks on Strait of Hormuz
Oil prices rose by?nearly 3 percent on Tuesday, reaching their highest level in four weeks. The U.S. reimposed its 'naval blockade of Iran, while both countries intensified attacks in the Strait of Hormuz. This increased uncertainty over energy flows. Brent crude futures rose last $1.50 or 1.8% to $84.80 a barrel at 0330 GMT. U.S. West Texas Intermediate Crude rose $1.70 or 2.2% to $79.84 per barrel. Brent gained?9.6% the day before, which was its largest daily gain since may 2020. The oil prices have reached their highest level since June 17, when the two countries signed a Memorandum of Understanding to end the conflict. On Monday, the U.S. military conducted a third night of strikes against Iran as U.S. president Donald Trump reinstated an Iranian blockade and proposed charging a 20 percent fee to guard?the Strait of Hormuz. Tim Waterer, KCM Trade's chief market analyst, said that the latest escalation has brought a "fresh risk" to the market. He added that, "While there hasn't been a complete closure yet, the conflicting objectives of the two sides have left the supply picture in a highly uncertain state." The UAE Ministry of Defence reported on Monday that two United Arab Emirates tanks were struck by two Iranian cruise-missiles during the attacks in the southern lane of Strait of Hormuz, in Omani territorial water. One Indian crew member was killed and eight others injured. The latest shipping data also revealed that the number of vessels transiting the Strait of Hormuz has fallen to its lowest level in over two months. The key factor to watch is the physical movement of crude oil through the Strait of Hormuz. Any significant blockage of tanker movement, prolonged'reduction in vessel motion, or disruption to export flow would likely cause another leg up in oil prices, said Phillip Nova analyst Priyanka Sahdeva. If barrels keep moving despite military escalation, then part of the geopolitical premium may gradually diminish. Yemen's Houthi group fired missiles towards Saudi Arabia, accusing it of bombing a Saudi-controlled airport on Monday. Simon Wong said that if the Houthis continue their attacks on Saudi crude oil in the Red Sea it would "increase (further?) uncertainty" about the crude flow from the region. A preliminary poll conducted on Monday showed that U.S. crude stockpiles are expected to have declined last week while gasoline and distillate inventories likely increased. Reporting by Ishaan Chow and Emily Chow from Singapore, with editing by Jamie Freed.
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London copper prices slip on Hormuz concerns as a gloomy demand offsets supply-chain woes
The price of copper in London fell slightly on Tuesday, amid the latest escalation of the Middle East conflict. However, this was offset by concerns over a possible supply chain crisis. Benchmark 'three-month' copper prices on the London Metal Exchange dropped 0.18% to $13,516 per metric tonne by 0300 GMT. After an increase in LME copper prices overnight, the most-traded contract for copper on the Shanghai Futures Exchange increased by 0.64%. It now stands at 103950 yuan a ton. Donald Trump, the U.S. president, and Iran announced that they would both blockade the Strait of Hormuz. The U.S. has renewed their attacks on Iran and tankers in the crucial waterway have been attacked. Everbright Futures, a Chinese broker, said in a note that the escalation is a "double edged sword" for copper. The broker stated that it supports the prices of the red metal amid concerns about disruptions to the copper supply chains, while weighing them down by increasing economic and trade risk and dampening demand. The fighting has re-ignited fears that rising energy costs and input prices will force policymakers to increase interest rates in order to combat inflation. This would dampen demand for industrial minerals such as copper, which are dependent on economic growth. The latest escalation in the war has pushed oil prices to their highest levels in four weeks. However, they remain?below the peak levels of the conflict. Gold that does not yield slid down to its lowest level in two weeks on fear of a higher U.S. Interest rates. The dollar's direction will be determined by the U.S. inflation figures and Kevin 'Warsh's first appearance before Congress as Federal Reserve Chairman. The escalation in prices of aluminium?increased as a result, and threatened to undermine?supply from major producers?in the Middle East. On the LME it rose 0.63% while on the SHFE, it grew 1.37%. Nickel added 0.2%, tin 0.44%, and lead ticked higher. On the SHFE, tin fell 0.49%, tin gained 0.61%, and lead lost 0.4%. (Reporting and editing by Rashmi aich; Solomon Cefai)
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Asian stocks fall as oil prices rise after Trump's Hormuz levies threat
Tuesday, oil prices rose and stocks fell in Asian trading after Donald Trump announced that the U.S. would re-impose its blockade of Iranian ships in the Gulf and charge a 20% surcharge on all cargo crossing Strait of Hormuz. After a volatile session, MSCI’s broadest Asia-Pacific share index outside Japan fell 1.7%. The biggest declines were in South Korea and Taiwan, where shares at their lowest points exceeded 3%. Japan's Nikkei fell by 0.8% while S&P500 e-minis futures declined by 0.3%. The CSI 300, the benchmark for Chinese stocks, fell 0.4% less than the regional index after Tuesday's export and import figures beat expectations. Brent crude futures rose 1.7% to $84.72 per barrel after hitting their highest level since mid-June, $85.64. The markets were also shaken by the hawkish remarks made on Monday by Federal Reserve Governor Christopher Waller. He said that the U.S. Central Bank may have to raise interest rates in the near future if inflation continues well above its 2% target. The U.S. CPI is expected to be released later Tuesday. Kevin Warsh will then deliver the semi-annual report of the Federal Reserve's monetary policy to Congress. Chris Weston of Pepperstone, Melbourne's head of research, stated that "markets reacted aggressively to the recent headlines about the Iran conflict." The prospect of tighter monetary policies into a possible energy shock rarely supports risk assets. Overnight, Wall Street stocks fell and oil futures soared by more than 9%, as the conflict between Iran and the U.S. re-emerged, once again slowing the flow of goods across the Strait of Hormuz. The S&P 500 ended 0.8% lower, and the Nasdaq Composite dropped 1.6%. Fed funds futures are pricing in an implied probability of 43.3% for a 25 basis-point increase at the U.S. Central Bank's next two day meeting on July 28 and 29, compared to 34.2% on Friday. This is according to CME Group's FedWatch. The yield on the 10-year Treasury bond in the United States was up 1.6 points to 4.624%. The U.S. Dollar Index, which measures the strength of the 'greenback against a basket?six currencies - dipped 0.1% to 101.18. It was trading at its highest levels for the month. Gold rose 0.3% to $4,012.37. Vis Nayar, Eastspring Investments chief investment officer, said in a recent note that the risk of a resurgence in U.S. - Iran tensions is primarily due to the impact higher energy prices have on currencies and interest rates. "Continually higher oil prices will increase the likelihood that the U.S. Federal Reserve will raise the Fed funds rate this year." Taiwan's benchmark index? fell to a new low in Taipei and led regional declines. Seoul's?stocks fluctuated between positive and negative territory, as shares of?SK Hynix fluctuated between gains and losses. They fell as much as 5,6% after a rally. The memory chipmaker's volatility comes after its dramatic drop a day before following its Nasdaq launch last week. (Reporting by Gregor Stuart Hunter; Editing by Muralikumar Anantharaman and Kevin Buckland) (Reporting and editing by Muralikumar Anaantharaman, Kevin Buckland, and Gregor Stuart Hunter)
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China's June imports of iron ore are at a six-month high due to robust shipments and resilient demand
China's imports of iron ore in June increased by 15% compared to the previous month, reaching a six-month record. This was due to miners increasing shipments to meet quarterly targets and lower prices encouraging more buyers among steelmakers and traders. Data from China's General Administration of Customs revealed that the world's largest iron ore importer imported 112,69?million tons of the key ingredient in steelmaking last month. This was up 6.4% on the previous year and the highest amount since December. Analyst Qingwei Xie at Shanghai Metals Market said that "shipments increased last months as some miners increased efforts to meet quarter guidance and as certain mines boosted production." Data from the shipping tracking agency Kpler revealed that iron ore exports to major suppliers Australia, Brazil and South Africa increased by 4.3% in late June. Hot metal production remained high?in the month of June, Xie said. Mysteel data showed that the average daily hot metal production in June, which is a measure of iron ore consumption, was 0.7% higher than it was in May. Analysts said that some cargoes cleared customs in June, but arrived as early as May. This contributed to the increase in ore imports. The price of this key ingredient in steelmaking fell by 4.7% during the month, as energy and freight prices dropped due to the tentative agreements between the United States & Iran. China's imports of iron ore totalled 628.87 millions tons between January-June, a 6.3% increase on an annual basis. Steel exports in China in June were high, despite a small monthly drop. This was due to a lackluster domestic market and competitive prices on the export market. Exports in June, which totaled 10.32 million tonnes, were 0.2% lower than the previous month, but 6.6% higher than the same period last year. Last month, steel consumption declined as high temperatures and heavy rains in certain?regions curbed building. This encouraged mills export more steel products. Last month, export prices dropped in line with the trend on the domestic market. This made Chinese steel more competitive against its international rivals. The Iran conflict has disrupted the flow of steel from the Gulf and prompted Middle Eastern customers to look for alternatives. Steel exports fell by 5.6% in the first half of this year to 54.87 millions tons. (Reporting and editing by Amy Lv, Lewis Jackson and Kate Mayberry.
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Trump reduces the size of two Utah National Monuments
The White House reported that U.S. president Donald 'Trump' signed orders on Monday reducing the size of 2 national monuments by over 90% in order to allow for motorized recreation, logging, and other resource developments in the area. The Bears Ears National Monument was reduced to 121.100 acres (49,000 ha) from 1.36 million acres and the Grand Staircase-Escalante National Monument was cut to 181,500 from 1.87 millions acres. Earthjustice, an environmental?group, said that it would "maintain protections for these precious landscapes" by taking legal action. Trump announced the news?at The White House with Utah Governor Spencer Cox, and Utah's two U.S. Senators, Mike Lee, and John Curtis. Trump stated that "we're doing something very drastic and very important for people in?Utah and people in?our country because many people use this." Joe Biden, the former president of the United States, expanded the monuments despite the opposition from Utah officials. Former President Barack Obama established Bears Ears in 2016. The monument is named after twin buttes which resemble the head of a bear on the horizon. It contains cultural and archaeological sites sacred to many Native American tribes. Bill Clinton, former president of the United States, established Grand Staircase-Escalante in 1996. Over the past two decades, numerous dinosaur fossils were found at 'the monument, which is known for its colorful rock formations. Trump has dismissed environmental and cultural preservation projects in the past. Senator?Martin Heinrich of New Mexico, a Democrat whose State borders southern Utah, criticized the President's decision. Heinrich stated in a?statement that this administration had repeatedly put the interests billionaires and powerful industry ahead of the?America's?public lands and their owners. "They're once again ignoring Tribal Voices, marginalizing local communities, and endangering places that belong every American." (Reporting and editing by Sonali Freed and Jamie Freed; reporting by Gram Slattery in Washington, Kanishka Singh and Nichola Slattery in Los Angeles.
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Asia markets are choppy due to Trump's threat of a levy on the Gulf of Hormuz.
The stock market fluctuated between gains and losses on Tuesday, and oil reached a new high of one month in early Asian trading after President Donald Trump announced that the U.S. would re-impose its blockade of Iranian ships in the Gulf. He also said the U.S. would charge a 20% surcharge on all cargo crossing the Strait of Hormuz. MSCI's broadest Asia-Pacific share index outside Japan rose by 0.4% in a volatile session. The gains were led by 2.2% for Korean shares. Japan's Nikkei was up by 0.2% while S&P500 e-minis futures were down 0.1%. Brent crude futures rose 2.6% to $85.50 per barrel, the highest price since mid-June. Trading resumed in Asia. The markets were also shaken by the hawkish remarks made on Monday by Federal Reserve Governor Christopher Waller. He said that the U.S. Central Bank may have to increase interest rates in the near future if inflation continues well above its 2% target. Chris Weston of Pepperstone Group Ltd, Melbourne, stated that "markets reacted aggressively to the recent headlines about the Iran conflict." The prospect of tighter monetary policies into a possible energy shock rarely supports risk assets. Overnight, Wall Street stocks fell and oil futures soared by more than 9%, as the conflict between Iran and the United States re-ignited and once again choked the flow of goods across the Strait of Hormuz. The S&P 500 ended 0.8% lower, while the Nasdaq Composite dropped 1.6%. The U.S. CPI is expected to be released later on Tuesday, and then Fed Chair Warsh will give the semi-annual monetary report of the central bank. Fed funds futures price in an implied 43.3% chance of a 25 basis-point 'hike' at the U.S. Central Bank's next two day meeting on July 28 and 29, compared to a 34.2% chance last Friday, according to the CME Group’s FedWatch tool. The yield on the 10-year Treasury Bond in the United States was up 2.2 basis point at 4.6297%. The U.S. Dollar Index, which measures the strength of the greenback against a basket six currencies, was at 101.29 and trading near its highest levels for the month. Gold fell 0.1% to $3,997.27. Stocks in Seoul fluctuated between positive and negative territory on Tuesday, as shares of SK Hynix fell as much as 4.7% in the opening minutes of trading, before rallying and trading up to 4.6% higher. The memory chipmaker's volatility comes after its dramatic drop a day before following its Nasdaq launch last week. Bitcoin was up 0.3% to $62,318.43, while ether rose 0.7% to $1,777.63. (Reporting and editing by Muralikumar Aantharaman; Reporting by Gregor Stuart Hunter)
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Australia blocks the voting rights of certain China-linked investors at Northern Minerals
Northern Minerals announced?on?Tuesday that Australian Treasurer, Jim?Chalmers, has ordered three 'offshore 'investment firms - including Hong Kong Ying Tak - to refrain from exercising voting rights within the rare earths developer. Foreign Investment Review Board of Australia (FIRB) has said that Hong Kong Ying Tak and?British Virgin Islands registered Real International Resources as well as Hong Kong registered?Qogir Trading & Service have failed to comply to earlier government 'orders to reduce stakes in Northern Minerals. In May, Treasurer Chalmers?ordered offshore shareholders to divest by July?2 their?holdings over concerns that Chinese-linked groups were seeking control of rare-earths mining company. Ying Tak's phone number and email address are not listed in the Hong Kong companies registry. Adam Handley, Northern Minerals' Executive Chair, said that the Federal Treasurer had issued interim instructions regarding compliance with his May Disposal orders. Handley stated that a review of Northern Minerals' share registry on July 10 found that the majority of shares covered by May divestment were still held by the investors targeted by these orders.
Take Five: Low Visibility Ahead
Even though the U.S. Government is shut down, this has not stopped stocks from reaching new highs. They are confident that rate cuts that favor bulls will continue to keep momentum. One problem is that it's difficult to see what's happening with the economy. Here is your week ahead from Alden Bentley, Rocky Swift and Amanda Cooper, in London, and Alun, Dhara and Amanda Ranasinghe in New York.
1/ DOLLAR BEAR SHARPENS THEIR CLAWS
The dollar is in a good position to start the final quarter of 2025. After falling in the first two quarterly periods, due to criticism of U.S. exceptionalism, the dollar ended Q3 with an 1% increase against major competitors. The greenback is still down 10% this year, but its stabilisation has brought some calm to the nearly $10 trillion a day FX markets. The immediate threat to the independence of the Federal Reserve, a source of potential dollar stress, has abated. The weak labour market adds to Fed rate cut bets. Dollar bears are unlikely to hibernate long, especially if the U.S. shutdown continues. Experts in FX say that the yen is particularly attractive, while the euro may still reach $1.20, which it was so close to reaching last month.
2/ WHO NEEDS DATA? The U.S. data schedule for next week is light. This means that further market disruptions from the shutdown of the federal government should be minimal. Also, the U.S. Treasury Department will conduct a normal note and bond auction.
The market is likely to make due without the U.S. International Trade Report on Tuesday and Friday's preliminary University of Michigan October sentiment index.
Treasury will sell $58 billion in notes for three years on Tuesday, $39 Billion in 10-year notes on Wednesday, and $22 Billion in 30-year bonds Thursday. Bond market cannot yet calculate the fiscal impact of a furlough of federal employees indefinitely. Demand could be strong as long as the benchmark yield on 10-year bonds is above 4%.
The earnings parade for Wall Street's largest banks will begin the following week with the announcement of the third-quarter results by Delta Airlines, Levi Strauss and other companies.
3/ A SHOT IN THE ARROW Global pharmaceutical stocks that were in trouble have received a boost thanks to a deal struck between Pfizer, the U.S. and Medicaid in which the price of prescription drugs will be lowered in exchange for tariff reductions. U.S. president Donald Trump took aim at the industry over high U.S. drug prices, which sent shares of drugmakers to multi-decades lows. Investors now believe that the agreement, which is more benign, will lead to more deals.
The U.S. Healthcare stocks have gained 5.6% in the past week, their largest weekly gain since over three years. European healthcare stocks are up 7.6% and on track to their best week ever.
It's now time to wait and see if the deals come to fruition, and if they justify this optimism. The U.S. also imposed tariffs on imported kitchen cabinets, furniture and timber. Trump has said that he will impose a 100 percent tariff on all films made overseas which are sent to the U.S.
The oil industry is struggling to cope with the hefty global supply, which only seems to increase. Demand also does not seem to be able to keep up. According to the International Energy Agency, there may be a surplus of 3 million barrels a day by 2026 compared to an excess of 600,000. The OPEC+ Group, which includes OPEC, other exporters, including Russia, met at the weekend. It is expected that the group will accelerate its pace of unwinding production curbs imposed by the pandemic.
Around $65 per barrel, the price of crude oil is about half that it was in 2022 when Russia invaded Ukraine. Geopolitics will continue to be the wildcard for producers, consumers and forecasters alike.
5/ DIRECTION UNDER DOWN
It is almost certain that the Reserve Bank of New Zealand's rates will be cut next week. How much will the Reserve Bank of New Zealand cut rates?
In August, the RBNZ cut interest rates to a low of just 3%. This was the lowest rate in three years. Last month, data showed that New Zealand's second-quarter economy shrank by 0.9% due to uncertainty over tariffs and a weakening housing market. Money markets are fully pricing in a quarter point cut to 2.5% at the RBNZ meeting on October 8. However, the likelihood of a half-point drop has risen to 44.5% compared to about 25% one week ago. The RBNZ's policy divergence from the Reserve Bank of Australia which held rates at the same level in September could cause further weakness for the kiwi. It is already down three years against the Antipodean counterpart.
(source: Reuters)