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The morning bid is a tumultuous market in Europe and the Middle East
Rae Wee gives us a look at what the European and global markets will be like tomorrow. U.S. European and U.S. stock futures rose?on Friday, while Asian stocks pared their early losses. This was presumably due to a'minor decline in oil prices' as the U.S. It is still unclear how that will work. It doesn't make sense to try and distort derivatives when the actual product is scarce. The war in the Middle East continues to disrupt everything, from air travel to shipping. Donald Trump, the U.S. president who is always eager to get involved in world affairs, said that he would like to be able to decide Iran's next leader. Investors have been in a tumultuous week, swinging between wishful thinking or panic about the potential severity and length of the conflict. The impact of the war has been most acutely felt on the energy markets, where oil is set to make its biggest weekly gain since Russia invaded Ukraine back in February 2022. Investors have priced in more hawkish expectations of rates across the major central banks, driving yields higher. The Asian stock market was on track for its biggest weekly drop in six years. One could forget about the U.S. Nonfarm Payrolls that are due later on in the day. The world's biggest economy is expected to have added 59,000 new jobs in February, after increasing by 130,000 in the previous month. Meanwhile, the unemployment rate will remain at 4.3%. Even though it is too early to see any concrete evidence of AI's impact on the labour market, the report will be closely examined for warning signs such as weak job growth or even net loss of jobs, and an increase in unemployment. The following are key developments that may influence the markets on Friday. Payrolls of non-farm workers in the U.S. (February) Federal Reserve's Daly Paulson Collins Hammack
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ASIA GOLD - High price of gold deters Indian buyers; China demand remains steady
The demand for gold in India slowed this week due to volatile prices amid the escalating Middle East conflict. Premiums in China remained 'firm' on a rise in investment demand. The closure of airspace in the region has sharply reduced supply, resulting in a reduction of discounts across India. Retail buyers in India are having a hard time digesting the steep price increase. Gold is now unaffordable at these prices, said Varghese Aukka, managing Director of Jos Alukkas in Thrissur, Kerala. On Friday, the price of gold in India was around 160,000 rupees per 10 grams, up from 169,880 earlier this week. Bullion dealers in the region offer discounts This week, official domestic gold prices could drop by up to $28 an ounce, including 6% import and 3% sales taxes. That's a significant discount compared to last week when they dropped up to $65 per ounce, which was a 10-month-high. Due to the widespread cancellation of flights and the closure of airspace in the Middle East conflict, gold imports from the key supplier, the United Arab Emirates, to India have almost ceased. This has helped to narrow the discounts. The wedding season is still in a slump. "Buyers are delaying purchases due to the volatility of prices," he said. Weddings in India are the main reason for gold purchases. Jewellery is a key part of brides' attire, and is often given as a gift by family members and guests. In the meantime, physical demand for gold in Chinese markets remains strong despite higher spot prices. Gold prices rose by $13 to $15 per ounce above global benchmarks This week, the premium is slightly higher than last week's $12 to $13 premium. Peter Fung, the head of Wing Fung Precious Metals' dealing department, said that a steady premium means "physical (gold) demand in China is still very stable" even after gold prices reached $5,000. Spot gold prices rose by more than 8% during February, marking the seventh consecutive month of gains amid increased global political and economic uncertainty. Prices have been volatile, and have fallen by about 3% this week due to inflation fears and the fading prospects of interest rate cuts. On Friday, prices were at $5,135 an ounce. Physical gold is available in Hong Kong Traded at par to premiums as high as $2 in Japan Gold was sold with a premium of up to $1. In Singapore Gold was traded for a premium of $2.25. This is down from the premiums of $3.50 to $4.80 last week. ($1 = 91,6400 Indian Rupees) (Reporting from Noel John and Rajendra Jhadhav in Bengaluru; Editing by SumanaNandy)
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Indian shares drop as Mideast War lifts crude and keeps risk appetite low
Indian shares fell Friday, with losses mainly in financial stocks. Investors remained cautious amid the U.S.-Israeli conflict against Iran that has pushed up oil prices and weakened global risk appetite. As of 10:05 am IST, the BSE Sensex fell 0.61% and was down to 79530.73. The Nifty 50 was also down by 0.59%. The conflict has raised fears that a wider energy supply shock could further increase crude prices, revive inflation pressures and cloud the global economic outlook. The dollar strengthened as the conflict continued to show no signs of abating. Brent crude rose 5% on Thursday to a 20 month high of $86.28 per barrel. It was trading last at $84.4. India is the third largest crude importer in the world. Higher oil prices can be negative for India. Ponmudi R., CEO of Enrich Money, stated that persistent Middle East tensions keep crude oil prices high, which raises concerns about a renewed inflation, and tighter monetary policies, leading to investors becoming risk-averse. On Friday, 12 of the 16 major sectors posted losses. Small-caps and middle-caps both rose by 0.2%. The two heaviest Indian benchmarks – HDFC Bank (down 1.3%) and ICICI Bank (down 2.2%), respectively – dragged down the financials and banks sectors. A report stated that Indian refiners were buying millions of barrels of Russian crude oil to fill in gaps caused by?disruptions related to the Strait of Hormuz. This was after an?U.S. The 30-day waiver allows purchases of Russian crude oil. Reliance Industries gained about 2% following the news. This helped limit losses in benchmarks. Discounted Russian crude may lower feedstock costs, which could boost the company's margins. Interglobe Aviation, among other stocks fell by 2% as J.P.Morgan warned of pressure on earnings caused by?headwinds due to higher fuel costs? and a?moderation in international air traffic because of the Middle East Crisis? Larsen & Toubro has dropped 2% this week and is down 7.5%.
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Sources say that India's Aditya Birla Group has restarted its iron ore business.
Three'sources' familiar with the matter said that Aditya Birla Global Trading, an Indian commodities trading company, is resuming its iron ore operations as other traders leave the market because of record low volatility. The Singapore-headquartered company, part of India's conglomerate Aditya Birla Group, which also owns aluminium producer Hindalco, trades ?agriculture, energy and metals but not iron ore, according to ?its website. According to two sources, the company has suspended its iron-ore business and will return to the Chinese market in order to diversify their portfolio and reduce the risk. All sources were speaking under condition of anonymity, as they weren't authorised to talk to the media. Metals traders are moving to metals trading in order to take advantage of the booming markets for aluminium and copper. However, iron ore is not benefiting from this new enthusiasm because volatility has fallen. China Minerals Resources Group, a state-owned buyer of iron ore, has been consolidating its purchases and trying to reduce volatility. Aditya Birla Global Trading and Aditya Birla Group did not reply to questions from. Reporting by Amy Lv and Neha Arora, New Delhi. Editing by Lewis Jackson & Jacqueline Wong.
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US Treasury could announce measures on the oil futures markets as energy prices increase
A senior White House official said that the U.S. Treasury Department may announce measures to combat rising energy costs as early as Thursday. These could include action on the oil futures markets. The global oil price has risen since the war began with Iran on Saturday. This is because the conflict in the Middle East has disrupted supplies. JOHN KILDUFF - PARTNER AT AGAIN CAPITALS "Intervention of Treasury in this market would be unprecedented. It is not fair to compare the use of treasury futures in the GFC with treasury markets. The U.S. Treasury is a major player in the bond markets. I presume the goal in this case is to lower the futures prices. This would theoretically involve selling many futures on an open market to affect prices." In the event that a second, acute supply disruption occurs, it would require a large amount of resources (capitalize the margin calls) to support this position. Treasury has 'unlimited resources, but. JOHN PAISEY, PRESIDENT OF STRATAS ADVISERS The U.S. government's stance on the issue could moderate oil prices, but the physical disruption of supply is still a problem, especially with the closing of the Strait of Hormuz. There is also no spare capacity in the Gulf. Financial manipulation will not work if oil is kept off the market in large quantities. "Traders will keep betting that the oil price will go up - because it should." PHIL FLYNN SENIOR ANALYST AT PRICE FUTURES GROUPS "This is a very novel, think-outside-the-box move. You can sell the front of the curve to the market and then buy the back using futures instead of physical barrels. The Treasury's traditional role is focused on fiscal policy, managing debt, and occasionally intervening in currency markets via mechanisms such as the Exchange Stabilization Fund. But not commodities like oil. TONY SYCAMORE IG MARKET ANALYST "If they try to influence the futures themselves (deliverable contracts), it could create a temporary pause or spook some speculative investors, but I would be surprised if this moved the needle beyond a few days. The oil market is global and driven by supply/demand fundamentals, especially now that tanker traffic in the Strait has been clogged and there's the real threat of Iranian drones and other'strikes. "A bit of Treasury jawboning and symbolic action will not unlock or change this." ED MEIR, MAREX ANALYST "I don't know what they are thinking, but selling futures in order to lower prices is a huge gamble. It will also be a unprecedented intervention in the crude oil markets. The question that immediately comes to mind is: "What happens if the prices continue to rise and go against an potential Treasury short? Will they use SPR oil as a delivery against their short, or will they continue to post margin to ride their position? Reporting by Pablo Sinha in Bengaluru, Anushree mukherjee, and Ashitha shivaprasad; editing by Nia Williams and Sumana nandy
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After a wild earnings season, Australia's stocks have lost $93 billion in one week due to the Mideast War
Investors are on edge due to the escalating Middle East conflict, and record earnings season volatility. S&P/ASX 200 has lost more than half its gains in February after a 3.8% drop since the weekend, when Israel and the United States began bombing Iran. The benchmark index fell another 1.1% on the Friday, with many blue-chip stocks falling. Nick Twidale is the chief market strategist for ATFX Global. He said, "Global downturns hit Australia harder than other jurisdictions. I think that we could see a downturn if this war continues too long." Once the conflict is over, Australia will have more to offer. "Unfortunately, at this moment, it appears to be moving on." Investors are worried about inflation fueled by rising oil prices, and the stock markets around the world are tumbling to their worst weekly losses for three years. "A prolonged conflict would be a negative for asset prices worldwide and?Australia will not be immune from this," said Phil Cornet a portfolio manager with Atlas Funds Management. The sell-off this week comes on the heels of Australia's half year earnings season which was marked by wild swings, with profits beats being rewarded and negative surprises severely punished. The ASX 200 has seen a record number of companies move by over three standard deviations during their reporting day. This is the highest percentage since JPMorgan started tracking this metric in 2015. In a recent report, the equity strategists at JPMorgan Australia, headed by Jason Steed wrote: "February's result season brought another record in terms of volatility for single stocks." According to LSEG, the top 20?companies of Australia, which account for close to two thirds of the benchmark ASX 200,?had their most volatile February in six years. CSL, the biotechnology giant, has fallen as much as 12 percent after reporting an 81% decline in first-half profits. Coles, the country's No. 2 grocery store, has fallen more than 7% since announcing a slow?start to second half. Companies that extract resources, drill oil or operate as licensed, regulated financial institutions are seen as more disruption-resistant, said Cameron ?Gleeson, a senior investment strategist at Betashares. BHP Group, the largest listed mining company in the world, rose 7% to notch a new record high. Commonwealth Bank of Australia, meanwhile, rallied by more than 8%, its best session since march 2020, following earnings reports that beat expectations.
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China tightens its restrictions on BHP cargoes, resulting in a rise in iron ore prices
The price of iron ore rose on Friday as the?increasing restrictions' on China's top buyer BHP to buy new seaborne cargoes raised supply concerns, which outweighed declining demand. As of 0206 GMT, the?most traded iron ore?contract at China's Dalian Commmodity Exchange (DCE)? grew 0.85% to $768 yuan ($111.21), a metric tonne. As of 0156 GMT, the benchmark April iron ore traded on the Singapore Exchange rose 1.03% to $101.05 a ton. People with knowledge of the situation said that China's state iron ore buyer instructed traders to purchase fewer seaborne shipments of BHP's flagship product: Mac fines and lumps. China's state-run iron ore buyer told traders this?week to buy fewer seaborne cargoes of BHP flagship products: Mac fines, Newman fines, and?Newman lumps. This comes after China banned domestic steelmakers and trader from buying BHP Jimblebar Fines since September and extended the prohibition to another BHP product,?Jinbao Fines, in November. Trading sources said that the latest restrictions have fueled fears over the future availability of iron ore, since BHP is the third largest supplier in the world and seaborne cargoes make up a significant portion of its business. The price increases were tempered by a waning demand and lingering production limits at North?China's steel mills. Mysteel, a consultancy, reported that the average daily hot metal production, which is a measure of iron ore consumption, had fallen by 2.4% by March 5 to 2.28 million tonnes, "the lowest level since December". According to an official report released at the annual parliament meeting, China has also reiterated its commitment to combat overcapacity, which could impact demand for feedstocks. Coking coal and coke, two other steelmaking ingredients, both gained in value. Steel benchmarks on the Shanghai Futures Exchange were mixed. Rebar gained 0.16%; hot-rolled coil remained unchanged; wire rod dropped 0.36%; and stainless steel fell 0.39%.
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Oil prices are expected to rise as the Middle East war continues. Stocks will be volatile this week.
In a volatile week for the global markets, the conflict in the Middle East has shown no signs of abating. Investors sought'safety in cash' as they realised that the U.S./Israeli war against Iran might last longer than originally anticipated. The central banks also began to adjust their rates in anticipation of more aggressive expectations. They were frightened by the possibility of an inflationary resurgence if energy prices continue to rise. The yields on U.S. Treasuries jumped 18 basis points, the most since nearly a full year ago, and the dollar is set to make its biggest weekly gain in over 16 months. "The range (of plausible outcomes) of the war has expanded, including both the possibility of a highly constructive resolution?and a very destructive one," Daleep Singh said, chief global economic at PGIM fixed income. Markets are asked to price a fatter set of tails, with little information about their likelihood or the paths in between. Brent crude futures are now trading at around $83 a barrel. They were as low as $69 a few days ago. U.S. Crude soared to a 20 month high this week. Both are expected to see a weekly increase of over 15%, the largest since February 2022. Klay Group’s senior investment team said that the most "market-relevant" risk is a severe escalation of infrastructure damage in key Gulf producers. This would lead to sustained upward pressure on crude oil prices, increase headline inflation, tighten liquidity globally, and raise recession risks. High-Flying Stocks Tumble The MSCI broadest Asia-Pacific share index outside Japan, which is the most representative of Asia-Pacific stocks outside Japan, was down 0.4% last week and expected to drop 6.6% this coming week. This would be its biggest weekly decline since March 2020. Japan's Nikkei fell 0.5%, and was on course for a weekly loss of 6.5%. South Korea's Kospi also was headed for the largest weekly drop in six years. Investors scrambled for profits to offset losses elsewhere. Even high-flying indexes and technology stocks, such as the Kospi, tumbled this week. Ben Bennett, the head of Asia Investment Strategy at L&G Asset Management, said that when funding conditions tighten, broader movements are often amplified, especially if leverage is involved. The U.S. stock market futures in Asia were unchanged on Friday. However, the EUROSTOXX50 futures and DAX Futures both rose by 0.6%. DOLLAR IS?KING Dollar is one of the few winners in this volatile week that has seen stocks, bonds, and even precious metals, a safe haven, fall. The dollar's rally halted on Friday but was still on course for a weekly gain of 1.4%, thanks to safe-haven demands and lower expectations about U.S. interest rate easing. The euro, still vulnerable to an increase in energy costs, is expected to fall by 1.7% this week. Sterling will also drop by 0.95%. Investors now expect the Federal Reserve to ease up by about 40 basis points this year. This is down from 56 basis points a week earlier. The odds of a Bank of England rate cut this month are also down, from being a near certainty last week, to just 23%. By the end of the year, it is expected that rates will be raised by The European Central Bank. In Asia, on Friday, the yield of the 10-year U.S. Treasury benchmark was unchanged at 4.1421% after rising 18 basis points this week. The yield on the two-year bond has increased by 20 basis points for the past week. Spot gold, meanwhile, was unchanged at $5,078.88 per ounce. However, it was on track for a weekly decline of 3.7% as higher yields and the stronger dollar overshadowed its appeal as a safe haven. (Reporting and editing by Muralikumar Aantharaman; Reporting by Rae Wee)
Oil drops as US could intervene in the futures market and issues waiver for Russian purchase
The price of oil fell for the first six-day period as the U.S. government considers intervening on the futures market to curb rising prices. It has also given waivers to Indian refiners so they can buy Russian crude to ease supply constraints caused by the Middle East war.
Brent crude futures fell $1.14 or 1.33% to $84.27 a barrel, and West Texas Intermediate was down $1.46 or 1.8% to $79.55 at 0251 GMT.
The U.S. took steps to reduce the price spike after it and its ally Israel started a war with Iran on February 28. This conflict has stopped tankers from passing through the Strait of Hormuz which carries about one-fifth of daily world oil supplies. It has also shut down refineries, oil production and liquefied gas plants in the Middle East's key energy producing region.
Brent is up 18% in the last four trading days since the start of the war, while WTI is up 21%.
On Thursday, a senior White House official stated that the U.S. Treasury Department was 'expected to announce measures against rising energy costs due to the conflict in Iran, including possible action involving oil futures markets, without giving any details.
Washington's potential move would be an unusual attempt to influence energy markets through financial markets, rather than physical oil supply.
Treasury has also given waivers to companies who want to buy Russian oil on tankers. This is to ease the physical supply constraint that has caused refineries to reduce their fuel processing.
Sources said that the first waivers were granted to Indian refiners after they responded to months of pressure by purchasing millions of barrels of Russian crude oil.
Analysts warned that the recent price increase is relatively modest compared to previous price shocks.
"While panic over surging oil 'prices' appears to be spreading outside of market 'circles,' it's important that this'move' is put into perspective. Despite crude's almost 20 percent surge this month, its price is only $3.40 higher than the average for the last four year," IG analyst Tony Sycomore said in a recent note.
(source: Reuters)