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ASIA GOLD-Indian gold discounts reach near-decade-high; Mideast tensions boost China demand
The gold discounts in India reached their deepest level in nearly a decade this week as the demand remained'subdued' and some traders avoided paying import duties. Meanwhile, escalating Middle East conflict boosted demand for safe havens in China. "A few importers to India are declaring gold as platinum studded jewellery at customs, even though it contains over 90% gold. A Mumbai-based gold dealer said that they are able sell the duty-free gold at a steep discount. Imports of gold are subject to a 6% duty. However, imports of platinum-studded jewellery can be made duty-free. This week, Indian gold dealers offered a discount on the price of a gram of silver. The price of gold is now up to $83 an ounce, including 6% import duties and 3% sales taxes. This is the highest rate since July 2016. Last week they offered a discount up to $28. Jewellers are not buying as retail demand is very weak, and they are busy closing accounts for the year," said a Mumbai dealer at a private bank that imports gold. In China, the world's largest consumer of gold, prices were higher by $20 to $30 per ounce than global benchmark prices This week, the premium is significantly higher than last week's $13 to $15. "No new import quotas were issued in March so far, restricting the inflows... Bernard Sin, Regional Director of Greater China for MKS PAMP, said that the PBOC has a dual strategy - steady reserves accumulation and tight quota controls - to keep the domestic market resilient 'yet constrained. China's central banks?extended its gold buying spree to a 16th consecutive monthly. Peter Fung is the head of trading at Wing Fung Precious Metals. He said, "Physical Demand (for Gold in China) remains very high because of the conflict in Middle East. People still want to buy gold as a haven of safety." Physical gold is available in Hong Kong In Japan, the premium is $3. Gold was sold with a $1 premium. In Singapore Gold was traded with premiums ranging from $0.50 to $ 2, compared to the $2.25 premium last week.
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Europe's debt-burdened Europe is less prepared to absorb energy shocks
Energy prices are rising due to the U.S./Israeli war against Iran. This is putting pressure on European governments to provide assistance for households and businesses. However, their financial resources in some major economies have been stretched. It is unlikely that they will provide the same level of support as was provided three years ago after Russia invaded Ukraine, when subsidies and other aid amounted to hundreds of billions of euros. In response to the 2022 energy shortage that will exacerbate cost of living concerns and angered voters, governments have begun to release record amounts of oil. France, Greece, and Poland have all introduced restrictions on profit margins, and reduced prices for oil - these measures are cost-effective and beneficial to the public purse. Germany is also interested in regulating pump prices. They may still need to do more. Frank Gill, S&P Global Ratings EMEA's lead analyst, said: "If gas prices rise and there is an interruption of more than a few weeks in Qatar's gas deliveries, you can expect governments to step in and introduce some subsidies." The governments don't know yet where the energy prices are going to land. It's evident that they are cautious when it comes to fiscal measures. The British government said that it was too soon to freeze fuel duties, and the French government resisted calls from opposition parties to reduce value-added taxes (VATs) on petrol. Italy may use VAT revenues generated by higher fuel prices to fund "a reduction in fuel excise duties". Gill says that in comparison to 2022, the COVID-19 Pandemic and energy crisis have led to a budget deficit that is nearly 3 percentage points greater than that of 2019. Interest rates are higher and the economic growth is lower than it was four years ago. Meanwhile, European governments have already increased their defence spending. Germany is increasing borrowing to fund a massive stimulus program. OIL PRICES NEAR PEAKS IN 2022 - BUT NOT FOR GAS While oil prices have been flirting with $120 per barrel this week and are nearing their peak of 2022, the energy situation in Europe is different from 2022. Gas prices have risen by over 50% since the start of the war, but are still only one-sixth the level they were at in 2022. Europe hasn't replaced Russia as it did in the past. Federico Barriga Salazar, Fitch's Western European ratings head, said last week that if prices continue to rise and governments are forced to offer support, this could increase fiscal pressures on France and Britain, given their large budget deficits. S&P warned that Hungary's investment grade rating is at risk in Central Europe due to the generous support measures already in place before an April election. Barriga-Salazar says that while Spain, Portugal, and Greece are in a better financial position, higher spending could undermine their recovery. Scope Ratings has warned about Italy's fiscal reputation. While it has done a lot to repair its reputation, a slowing of the economy could make it more difficult for Italy to leave the European Union budgetary discipline measures. TARGETED MEASURES Barclays economists say that, given the limited space to act, governments will have to 'limit and target more this time, as they did in 2022. Britain and Germany are already echoing that message. Morgan Stanley estimated that the energy support measures taken by euro zone governments in 2022-2023 amounted to 3.6% of their output, even though EU rules on deficits were suspended because of the pandemic. Morgan Stanley estimates that they can only support around 0.3% of the output per year by adhering to EU rules. Morgan Stanley stated that if the Strait of Hormuz remains closed for more than a month, and there are signs of weakened growth, the EU could allow certain countries to temporarily deviate from the rules. Morgan Stanley expected these countries to spend up to 0,6% of their annual output to fund targeted actions. Morgan Stanley said that it would be a very severe economic downturn before the EU suspended its rules once again. The higher costs of debt are a constraint in themselves. Gregoire Pesques is the chief investment officer for fixed incomes at Amundi, Europe's largest asset manager. In recent years, bond investors have become more aware of fiscal slippages in Europe. Britain and France are at the front line. Pesques stated that Germany and Spain with their low debt and high growth have more room for response. The government's ability to offset the costs of support measures is key in determining the affordability of such measures. Windfall taxes on energy firms is one strategy that many European countries implemented last time, and Italy has already indicated. S&P's Gill pointed out that revenues were far below the cost of subsidies last time. Subsidies and price caps, say critics, would increase energy demand and push prices upward. Georg Zachmann is a senior fellow with the think tank Bruegel. He said: "In the short-term, it's best to enable and encourage reductions in the demand."
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Oil prices rise despite US sanctions on Russian oil
The oil prices are on the rise this week, despite U.S. efforts to reduce supply concerns. Brent futures rose by 10 cents or 0.1% to $100.56 per barrel at 0400 GMT. This is expected to lead to a weekly gain of about 9%. U.S. West Texas Intermediate crude (WTI), for April, was down 16 cents or 0.2%, at $95.57 per barrel. However, it is also expected to rise 7% for the week. Analysts said that the license issued by Treasury Secretary Scott Bessent was not enough to solve wider supply constraints. "ICE Brent Futures have already broken $100 per barrel, and they are still supported, despite the moves to calm markets, with the Russian oil 'waiver' and the unprecedented release emergency stockpiles," Emril Jamil said, senior analyst at LSEG. The market views this as a temporary solution, which does not deal with the "crux" of the disruption in supply. The crude intermonth spreads in future months show a continued and unresolved tightness of?supply," Jamil stated. Jamil stated that Brent is supported more than WTI because Europe is more vulnerable to energy security concerns, whereas the U.S. can stave off their exposure due to domestic production. Analyst Yang An at Haitong Futures said that the issue of the license will not resolve the fundamental problem. "The most important thing for the Strait of Hormuz is to restore navigation." The announcement about Russian oil comes a day after U.S. Energy Department announced that the U.S. will release 172 millions barrels of oil to curb the skyrocketing price of oil. This plan was coordinated in conjunction with the International Energy Agency (IEA), which agreed to release a record-breaking 400 million barrels from strategic oil stockpiles. The U.S. also contributed. In a note, IG analyst Tony Sycamore stated that the'resurgence of Middle East risks' shattered any temporary relief triggered by IEA. The benchmark prices for both products rose by more than 9% Thursday, reaching their highest levels since August 20,22. Mojtaba Khmenei, Iran's supreme leader, said that Iran will continue to fight and keep the Strait of Hormuz closed as leverage against Israel and the United States. Iraqi security officials reported that two fuel tanks in Iraqi waters had been struck by Iranian boats laden with explosives, on Thursday. Iraqi officials told state media that oil ports in the country have stopped operating. Scott Bessent, U.S. Treasury secretary, told Sky News that the U.S. Navy would, possibly with an international alliance, escort ships through the Strait of Hormuz if it was militarily feasible. (Reporting from Jeslyn Li in Singapore, Sam Li in Beijing and Lewis Jackson; editing by Tom Hogue).
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As supply concerns increase, iron ore prices rise.
The price of iron ore futures rose for the third session in a row on Friday, as expanded restrictions on cargoes by mining giant BHP caused concerns about supply. These were further exacerbated by expectations that?hot metal production would increase in?China. As of 0318 GMT, the most-traded?contract? for May iron ore on China's Dalian Commodity Exchange climbed by 3.22% to 818.7 yuan (118.87 dollars) per metric ton. Earlier in the session, the contract reached a high of 827 Yuan for two months. The benchmark iron ore for April on the Singapore Exchange rose 0.7% to $108.6 per ton. Both contracts have gained 6.5% this week. China has increased its ban on BHP iron ore a second time in just two weeks. This is a result of a contract dispute that has been ongoing for months with the world's third largest supplier of this key ingredient. Three sources familiar with the matter said that China Mineral Resources Group, the state-run buyer of iron ore, told domestic steel mills and 'traders' on Thursday they were prohibited from taking delivery of Newman Fines, a popular BHP ore stored in ports. Beijing has gradually tightened restrictions for local steel mills, traders and buyers of BHP iron ore in the last six months while it negotiates terms for BHP's supply contract 2026. Last week, traders were instructed to buy fewer Newman lumps, Newman fines and Mac fines. However, the directive also allowed them to purchase the grades of iron ore that are already in port storage. The ban this week restricts the buying to?stocks of?BHP Newman lumps or Mac fines that are already stored in ports. After the lifting of production cuts last week, it is expected that demand for feedstock will increase. The inspections and maintenance of the key Chinese steelmaking hub Hebei have also been completed, and warmer weather has encouraged construction. Coking coal and coke, both of which are used in steelmaking, grew by 2.84% and 1.65%, respectively. The benchmarks for steel on the Shanghai Futures Exchange have increased. Rebar increased by 0.7%, while hot-rolled coils gained 0.85%. Wire rod also firmed up 0.18%, and stainless steel hardened 0.422%. ($1 = 6.8855 Yuan) (Reporting and editing by Ronojoy Mazumdar).
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Trump believes Iran's supreme leader, the new supreme leader, is still alive but damaged
Donald Trump said that the new Iranian Supreme leader Mojtaba Khmenei is still alive, but "damaged." His father, the previous supreme ruler, was killed in the U.S.-Israel war against Iran on the very first day. Khamenei has not been seen in Iran since he was selected on Sunday by the clerical council. His first remarks were read by a television presenter on a Thursday. A senior Iranian official said on Wednesday the newly-appointed supreme leader was only lightly injured, but continued to work. State television had described him as a war-wounded man. "I think (he is) probably alive." In an interview with Fox News' "The Brian Kilmeade show," Trump stated, "I think he has been damaged, but I believe he is probably alive, in some form." Fox News published his remarks late Thursday. Khamenei made his first remarks in which he vowed that the Strait of Hormuz would remain closed and urged neighboring countries to shut down?U.S. Bases on their territory are at risk of being targeted by Iran. On February 28, the U.S., Israel and other countries began attacking Iran. Iran responded by launching its own attacks on Israel and Gulf states with U.S. base. As the war neared a two-week mark and thousands of people had been killed, the leaders of Iran and Israel, as well as the United States, all expressed defiance and vowed to continue fighting.
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Finance Minister: Japan is ready to take action against sharp yen fluctuations
Satsuki Katayama, Japan's Finance Minister, said that the country is prepared to take any steps necessary against sharp swings on foreign exchange and other financial markets. These have a major impact on peoples' livelihoods. Katayama said at a regular press conference that it was "clear" that the Middle East crisis had caused significant volatility in financial markets. She said that the government was ready to take action at any time to respond to the sharp swings in the market, particularly those caused by the surging oil price. The yen reached 159.43 yen on Thursday. This is the lowest since January 14. An escalating Middle East war has pushed crude oil prices up, raising concerns about inflation and slowing growth. As Japan is heavily dependent on?energy imports, a weaker yen may also worsen the impact of higher oil prices. Katayama said that a recent Group of Seven meeting, which included U.S. Treasury Sec. Scott?Bessent, had discussed the financial markets, including exchange rates. She added, "In any event, we are keeping extremely close communication with U.S. authorities, even closer than usual."
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Sources: China expands BHP iron ore banning amid contract negotiations
China has increased its 'ban on BHP Iron Ore for the second time in just two weeks. This is a result of a contract dispute that has been ongoing for months with the third largest supplier of this key ingredient to steelmaking. Three sources familiar with the situation said that China Mineral Resources Group, the state-run buyer of iron ore, told domestic steel mills on Thursday they were prohibited from accepting Newman fines – a popular BHP ore found in ports – starting late next week. According to two anonymous sources, customers will be able to receive their cargoes in the next five days. One of the sources said, "We had a feeling (that the day would arrive when more BHP products were restricted) and we waited for it to come. It was not a big surprise." BHP declined comment, and CMRG didn't immediately respond to a comment request. Beijing has gradually tightened the restrictions on local steel mills and traders purchasing BHP iron ore in the last six months, as it negotiates terms for BHP's supply contract 2026. China banned the purchase of Jimblebar Fines, another iron ore product, in September. This was followed by Jinbao in November. Last week, traders were instructed to purchase fewer Newman fines (also known as Newman lumps) and Mac fines. However, the directive did allow for the purchase of grades of iron ore that are already in port. The ban this week restricts the purchase of BHP Newman lumps or Mac fines that are already in port storage. SPILL-OVER EFFECT The traders are dumping the cargos because they believe that more restrictions will be announced soon, making it impossible for them to sell. Another source said, "We plan to sell all Newman Fines at ports within the next few days, and will also get rid of Mac Fines, even if they are not currently under this wave of restrictions, because you never know when you won't be able to take delivery of Mac Fins." The benchmark April iron ore price on the Singapore Exchange jumped by over 4% to $108.95 on Thursday afternoon, reaching their highest level since early January. According to another trader, the portside stock of Newman Fines was 3.17 million tonnes as of this week. This is up 55% since October.
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After drone attack, several French soldiers are wounded and one officer is killed in Iraq
French President Emmanuel Macron condemned on Friday an attack that left one French officer dead and?wounded a number of soldiers in?Erbil. The French army announced on Thursday that six French soldiers who were 'providing counter-terrorism training' in the area had been injured in a drone strike, only hours after another Italian base in the same region was targeted. France has hundreds in Erbil as part of an international coalition fighting?Islamic State militants. In a tweet, Macron stated that Chief Warrant Officer 'Arnaud?Frion "died" for France and that several of our soldiers were injured in the attack. He said: "This attack on?our forces that have been fighting Daesh since 2015, is unacceptable." The presence of French soldiers in Iraq falls'strictly under the umbrella of the fight against terror. The war in Iran does not 'justify' such attacks. The drone's origin was not immediately apparent. According to two Iraqi sources who are close to the group and three Iraqi sources, the Shi'ite militants of Iraq have increased the number of missile and drone attacks against U.S. interests within Iraq over the past three to four days. In a press release, Erbil Governor Omed Koshnaw stated that the drone strike was carried out in the Makhmour region. The Italian Defence Ministry said that the overnight airstrike on an Italian military base was deliberate. It targeted a facility hosting NATO personnel. France has deployed about a dozen navy vessels, including an aircraft carrier strike group to the Mediterranean Sea, Red Sea, and possibly the Strait of Hormuz, as part of its defensive support for ally countries threatened by the Middle East conflict. Leaders of Iran, Israel, and the United States have all voiced their defiance, and pledged to continue fighting as the Middle East war approaches the two-week mark this Friday. The conflict has killed thousands, disrupted the lives of millions, and shaken financial markets. (Reporting and editing by John Irish and Ahmed Rasheed; Mrinmay dey and Michael Perry).
MORNING BID - EUROPE - Crude shock
Ankur Banerjee gives us a look at what the future holds for European and global markets
The selloff of stocks and bonds has increased as markets prepare for a war in the Middle East which could keep oil prices at $100 per barrel. Traders are scrambling to determine the risks associated with stagflation.
Investors are bracing themselves for increased volatility as leaders from Iran, Israel, and the United States show their defiance. They have put on their risk-off caps and bought U.S. dollar.
The global interest rate outlook has been completely transformed by the fading hopes for a quick resolution. The Federal Reserve has not cut rates this year as much as they did at the end February.
On Thursday, the money markets had fully priced in a rate increase for?the European Central Bank by July, with a 70% probability of a second hike by December. In February, traders had a 40% chance of a rate reduction before the end of the year.
Markets will pay close attention to a number of central bank meetings that are scheduled for next week, as they get the chance to hear from policymakers about their opinions on inflation, interest rates, and growth.
The benchmark yields for the Euro Area Bunds reached their highest level since almost two and a half years, while U.S. Treasury yields on 2-years have hit a 6-month high.
Since the start of the war, the U.S. Dollar has gained over 2% compared to six major rivals.
Asian investors began their day with some good news. The U.S. announced a 30-day waiver allowing countries to purchase sanctioned Russian crude oil and petroleum products that are currently stranded on the sea. On the news, oil prices eased and stocks recovered some of their losses.
While Treasury Secretary Scott Bessent said the move was to stabilize the global energy markets the relatively muted response underscored real inflation fears and the poor investor sentiment around the world.
U.S. stock futures and European stock prices point to a higher opening, but it remains to be determined if this momentum will continue.
The following are key developments that may influence the markets on Friday.
* UK GDP
CPI France
The Eurozone Industrial and Manufacturing Data
(source: Reuters)