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Fed markets jittery as Mideast conflict continues
Investors held back on new stock market and forex bets on Wednesday due to the escalating Middle East hostilities, and the uncertainty surrounding the Federal Reserve's decision on monetary policy later that day. While traders pondered how Israel's ongoing airstrikes on Iran, which are now in their sixth day, will affect the global financial and economic markets, European stock indexes and international oil price fluctuated, without much direction. The broad European equity index traded flat. The UK's FTSE 100 index edged up 0.2% and Germany's DAX rose by the same amount. Brent crude oil dropped 0.8% to $75.92 per barrel but was still set for a weekly increase of 1.6%. Local media reported that thousands of Tehran residents fled Israel's attacks on the inner circle of Iranian leader Ayatollah Ali Khamenei, while Israel reported Iranian counterattacks and U.S. fighter jets deployed to the region. Israel's biggest ever air strike against Iran, launched shortly after it concluded that Tehran was close to developing nuclear weapons, has sparked fears of disruptions of oil supply in the Strait of Hormuz. This is a major sea-borne oil conduit. In addition to the U.S. tariffs, the sharp rise in oil prices poses a new global inflation risk. Investors are becoming more nervous about the possibility of a direct U.S. involvement in Syria after President Donald Trump called this week for Iran to surrender unconditionally and warned Washington that its patience is wearing thin. Joseph Capurso is the head of sustainable and international economics for Commonwealth Bank of Australia. The markets are trying hard to assess the risk of a large U.S. Military intervention. The market may not be thinking clearly, but the oil and currency prices indicate that they are pricing in some risk of a very bad outcome. The U.S. equity contracts were also directionless. Contracts tracking the S&P 500, and the tech-heavy Nasdaq 100 rose about 0.2% each after the cash session ended in the negative on Tuesday. The dollar has been gaining against other currencies due to its energy exporting status. However, future oil price spikes may impact consumer spending in regions that import oil, such as the eurozone and Japan. Last bought at $1.1535. The pound edged up 0.2% to $1.3458 after slipping 1.1% the previous session. The yen also rose 0.2% to 1.4498. Thierry Wizman, global FX and rate strategist at Macquarie Group, said that "the war has shown that the U.S. Dollar still retains a little bit of a haven status" in certain situations. FED 'DOT' Plot The Middle East conflict, coupled with the prolonged uncertainty surrounding Trump's tariffs, and signs of fragility within the U.S. economic system, create a difficult backdrop for the Federal Reserve to make its policy decision on Wednesday. Data released on Tuesday showed that U.S. retail sale fell by 0.9% more than expected in May. This was the largest drop in four month. The Fed is expected to maintain its current interest rates. However, the Fed's updated economic projections and benchmark rate (also known as a dot plot) will be the main focus. Harvey Bradley, co-head global rates at Insight Investment, said that markets will be closely monitoring the Fed's quarter dot plot to get clues as to when and how the central bank plans on resuming its rate cutting cycle. He added that "tensions in the Middle East could threaten the inflation picture even further. It cannot be ruled-out that projections will adjust to reflect only one rate reduction this year." He added that this was not a certain outlook, as the U.S. labor market had begun to falter. U.S. Treasury rates were stable after they fell on Tuesday when investors bought government bonds as a safe haven in response to recent developments in Israel and Iran. Treasury yields are the benchmark for interest rates on debts around the world. They fall as the price of securities increases. The benchmark 10-year U.S. bond yield rose by about one basis point (bp), to 4.4027%. It had fallen approximately six basis points the previous session. The two-year rate, which is more sensitive than the 10-year to changes in expectations of Fed interest rates, remained at 3.9586%. Spot gold was flat at $3.386 per ounce.
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London copper prices rise on a softer dollar but Middle East tensions limit gains
London copper prices rose on Wednesday due to a weaker dollar. However, heightened tensions across the Middle East dampened risk appetite globally and held down metal prices. As of 0712 GMT, the London Metal Exchange reported that three-month copper was up by 0.46%, at $9,713 a metric ton. LME aluminium fell 0.02% to 2,550 per ton. Zinc climbed 0.55% to $2653, while lead grew 0.18% at $1979.5, and nickel climbed 0.24% to $14,960. Tin rose 1.11% to $30,625. The U.S. Dollar fluctuated against the majority of major currencies on Wednesday. Dollar-denominated investments are more affordable for holders of currencies other than the dollar. Analysts at ANZ said that "base metals remained under stress amid a broader risk-off tone across the markets". Worries about the escalating violence in the Middle East were at forefront of markets on Wednesday and drove oil prices up. Oil prices are rising, which dampens economic growth and increases inflationary pressures. Retail sales in May fell more than expected, despite President Donald Trump's changing tariff policies. The SHFE's most-traded contract for copper gained 0.42%, to 78.860 yuan (10,976.10) a metric ton. SHFE aluminium rose 1.35% to 20,680 Yuan per ton. Lead fell 0.68% at 16,810 Yuan. Nickel dropped 0.42% to 118,480 Yuan. Zinc gained 0.85% to 22060 yuan. Tin increased 0.28% at 265,010 Yan. Click or to see the latest news in metals, and other related stories.
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China's slowdown in demand for iron ore has led to a further decline in the price of iron ore
Iron ore futures declined on Wednesday, and were on course for a fifth consecutive session of declines. This was due to a slowdown in demand for steelmaking materials from China, the top consumer. The day-traded price of the most traded September iron ore contract at China's Dalian Commodity Exchange was 695.5 Yuan ($96.79). As of 0702 GMT, the benchmark July Iron Ore traded on Singapore Exchange fell 0.41% to $82.4 per ton. "Iron ore price fell below $93 per ton, as China's demand continues to slow." The demand from China will likely remain weak due to the ongoing slowdown of China's real estate market," said ING analyst in a recent note. Official data released on Monday showed that China's new house prices dropped in May, continuing a stagnation of two years. According to Mysteel's data, China's blast-furnace steel mills saw their production fall for the fifth consecutive week between June 6-12. The consultancy attributed this to the regular maintenance stops among the mills. The rainy season in southern China has slowed down construction activity. ANZ analysts said that high temperatures in the north are contributing to a slower pace of construction. ANZ reported that Beijing's efforts to curb steel overcapacity appear to be working. The National Bureau of Statistics reported that China's crude output of steel fell 6.9% compared to the same month a year ago, reaching 86.55 millions tons. Steelhome data show that the total iron ore stocks across China's ports increased by 1.06% in a week to 133.4 millions tons on June 13. Coking coal was down 0.57%, while coke rose 0.62%. The benchmarks for steel on the Shanghai Futures Exchange have gained some ground. Hot-rolled coil and wire rod gained around 0.43%, while rebar and stainless steel rose by about 0.1%. ($1 = 7.1856 Chinese Yuan) (Reporting and editing by Michele Pek)
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Gold prices fall as investors remain on the sidelines before Fed decision
The gold price fell in choppy trading on Wednesday as investors avoided placing large bets in anticipation of the U.S. Federal Reserve policy announcement. They also kept a close eye on developments in the Israel-Iran dispute. As of 0647 GMT, spot gold was down by 0.2%, at $3,381.10 per ounce. U.S. Gold Futures were also down 0.2% at $3,399.30. Investors tracked the Middle East risk escalation. Gold fluctuated. The Fed's decision to lower rates this year is bolstered by the tepid U.S. retail sales, housing market and industrial output reports. Iran and Israel launched missile attacks on each other Wednesday, as the air conflict between the two long-time enemies entered its sixth day. This is despite the call by U.S. president Donald Trump to Iran's unconditional submission. Three U.S. officials said that the U.S. was deploying additional fighter aircraft in the Middle East, and expanding the deployment of warplanes. The data released on Tuesday shows that U.S. retails sales fell more than expected in the month of May. This was mainly due to a drop in motor vehicle sales as the rush to avoid tariff-related price increases waned. The U.S. Central Bank is expected to keep interest rates the same at the end its policy meeting, which will take place later that day. The Fed will also update its projections of the economy and benchmark interest rates. Goldman Sachs stated in a report that they "maintain our forecast" that central bank purchases and ETFs holdings will increase the price of gold to $3,700/oz and $4,000/oz respectively by the end of 2025 and mid-2026. The SPDR Gold Trust is the largest gold-backed ETF in the world. Its holdings increased by 0.43% on Tuesday to 945.94 tons. Other than that, silver spot fell 0.2% per ounce to $37.14, platinum rose 0.7% at $1,270.88 and palladium increased 0.2% at $1,054.30.
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Australia shares are down as miners and gold stocks weigh on the market; Middle East conflict is in focus
Australian shares fell on Wednesday, as mining and gold stock losses offset gains in energy and technology stocks. Investors remained cautious because of the ongoing Israel-Iran war. The S&P/ASX 200 Index fell by 0.1%, closing at 8,531.2. The benchmark index fell by 0.1% on Tuesday. As the Israel-Iran conflict entered its sixth day, fears of a wider conflict were stoked by Trump's demand for Iran's submission and a thinned thread of U.S. tolerance. The benchmark index on the Sydney Stock Exchange fell 1.6%, the lowest since May 2. Iron ore prices dropped due to a weaker dollar and the slowdown in demand from China, the largest consumer. BHP Group, the world's biggest listed miner, fell by 1.2%. Rio Tinto, Fortescue and Fortescue, on the other hand, lost 1.1%, and 4% respectively. Gold prices remained flat, but gold stocks fell 2.3%. Henry Jennings is a senior analyst at Marcustoday and a portfolio manager. He said that investors lock in recent gains in gold stocks by taking profits. Energy stocks rose 0.7% on the back of rising oil prices amid fears that the conflict between Israel and Iran could disrupt supply. The financial stocks of Australia's largest lender, Commonwealth Bank of Australia, rose 0.1%, led by an increase of 0.6%. Grady Wulff is a Bell Direct market analyst. He said that banking stocks were rising due to the fact that they are considered safe havens in times of geopolitical unrest. The technology stocks gained 1.1% despite Wall Street's decline overnight. Jennings said that since domestic technology stocks are not doing well, there is a dip in buying of the sub-index. The benchmark S&P/NZX 50 Index for New Zealand closed at 12,627.32 - a 0.1% decrease. Investors around the world are also waiting for the Federal Reserve to announce its monetary policy later that day. The central bank is expected to maintain its current rates. (Reporting and editing by Tasim Zahid in Bengaluru, Adwitiya Shrivastava from Bengaluru)
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UK inflation falls in May, but food prices rise
British inflation in May slowed down as expected, mainly due to the fall in air fares in April, and the correction of an error in tax data. However, food prices rose at their fastest rate in over a year. The Office for National Statistics reported on Wednesday that consumer prices increased by 3.4% annually in May. This was in line with the predictions of economists as well as the Bank of England. The BoE forecasted that the services price inflation would be 4.7% in May, which is the same as the April reading of 5.4%. The poll predicted a reading of 4,8%. The ONS reported earlier this month that the headline reading for consumer prices in April of 3.5% was overstated by 0.1% due to an error with the data on car taxes from the government. The April figures were not changed, but the correct data for May was used. After a spike during the Easter holidays, air fares dropped sharply in April. The data is unlikely to change interest rate expectations. Investors and economists who believe that the BoE will not raise borrowing costs when it announces their June policy decision Thursday. The US dollar and sterling both rose a little after the ONS release. In April, gas, electricity, and water prices increased along with higher employer taxes, which caused inflation to jump from 2.6% in march. The rise in oil price since the beginning of the Iran-Israel war last week may cause inflation to increase again. The ONS reported that food prices increased by 4.4% over the past 12 months, which is the largest increase in more than a year. This was a major blow to low-income families. Some BoE officials disagreed with the central banks' key assumption made at its meeting in May that the recent rise in inflation would not have a longer-term effect on pricing behavior. Huw Pill, Chief Economist at the Bank of England, said that interest rates were being cut too quickly last month due to inflationary pressures from wages. However his May vote to hold borrowing costs was more likely a "skip" than a stop to rate reductions. The market pricing on Tuesday indicated that there is an 87% probability that the BoE would leave rates unchanged this week. Two 0.25 percentage point cuts are priced in for the end of the year. In a vote split in three, the BoE cut rates by a quarter-point to 4.25%. Two members of the Monetary Policy Committee voted for a larger reduction and two others - including Pill Pill - voted to hold. In May, the central bank stated that it expected inflation to reach a peak of about 3,7% in later this year. Some economists believe that April could be the peak, but the Middle East conflict poses a greater risk for price pressures. (Writing and editing by Andrew Heavens; Andy Bruce)
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ONS reports that UK inflation in May was 3.4%.
The Office for National Statistics reported on Wednesday that British inflation was down to 3.4% per annum in May from the original published rate of 3.5% per annum in April. In a poll of economists, the Bank of England also predicted a reading of 3,4% for May in its forecasts last month. The ONS reported earlier this month that the 3.5% consumer price inflation rate for April had been exaggerated by 0.1 percent points because of an error in the data on car taxes from the government. The April figures have not been changed, but the correct data has been used for the May readings. Investors and economists who were surveyed believe that the BoE's policy announcement for June will be held on Thursday. In April, gas, electricity, and water prices increased along with higher employer taxes, which caused the inflation rate from March to jump by 2.6%. The rise in oil price since the beginning of the Iran-Israel war last week may cause inflation to increase again. Several BoE officials disagreed with the central banks' key assumption made at its meeting in May that the rise in inflation would not have a longer-term effect on pricing behavior. Huw Pill, Chief Economist at the Bank of England, said that interest rates were being cut too quickly last month due to inflationary pressures from wages. However his May vote to hold borrowing costs was more likely a "skip" than a stop to rate reductions. The market pricing on Tuesday indicated that there is an 87% probability that the BoE would leave rates unchanged this week. Two 0.25 percentage point cuts are priced in for the end of the year. In a vote split in three, the BoE cut rates by a quarter-point to 4.25%. Two members of the Monetary Policy Committee voted for a larger reduction and two others - including Pill Pill - voted for a holding. In May, the central bank stated that it expected inflation to reach a peak of about 3,7% in later this year. Some economists believe April could be the peak, despite the Middle East conflict posing a greater risk for price pressures. (Reporting and editing by Sarah Young; reporting by Andy Bruce)
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Does the battle over LME aluminum stocks signal or cause noise? Andy Home
Where has all the aluminum gone? In the warehouses of London Metal Exchange (LME), there were 1.3 million tons of aluminium two years ago. Since then, the inventory has almost halved to levels last seen in 2020. London's market is becoming more turbulent as traders compete for what's left. This may not be apparent at first glance, but the calm exterior masks a lot of turmoil. Short-dated spreads are tightening and becoming volatile. While the LME outright three-month price has been tethered around $2,500 per ton, the LME outright three-month prices have been sedately hovering around that level. LME's aluminium market has seen titanic battles for metal between traders with deep pockets. The game has taken on an entirely new dimension ever since the exchange in April of last year banned the delivery of new Russian aluminum. This latest LME stock battle echoes past LME stock battles, but this time the LME noise could be masking an essential market signal. A LARGE MARK, LARGE POSTIONS The biggest base metals market in the world is aluminium, with an annual consumption of about 100 million tons. Aluminium traders are known to have taken outlandishly big positions on the London market. This mega-long position has been causing havoc in nearby spread structures for the past month. The benchmark period is three months of cash The market has moved from a comfortable contagious of more than $42 per tonne in April, to a small backwardation. Last week, the "tom-next spread", which is a cost-effective way to roll a position over night and an indicator of market stress was traded at a backwardation of $12.30 per ton. There is no doubt that someone is looking to buy a large amount of aluminium, but the LME has only 321,800 tonnes of metal available in its warehouses. Two-thirds are Russian. In April of last year, Russian metal was banned from the United States and United Kingdom. It is now subject to quotas and a complete ban in Europe will be implemented at the end 2026. This makes it less desirable. There's no way to tell how many of the 323,000 tonnes of metal in LME storage that are also Russian, but there is no indication of this metal being moved to warrant to ease the spread tightness. If the goal of the squeeze is to get metal out of deep non-LME shadow storage, then it does not seem to work. So far, this month's arrivals have been a mere 150 tons. The LME ban on Russian metal after April 13, 2020 may hinder the normal functioning of the LME stock grab trade. This is to tighten the spreads in order to force holders of metal to release it. This assumes that there are a large number of aluminum products, Russian or otherwise, available for LME deliveries. CHINA'S IMPORT AFFECTION GROWS This assumption is beginning to seem a bit questionable given the absence of significant arrivals in the LME system of any type of aluminium since March. China's imports of Russian metal so far in this year indicate that even Russian metal is in high demand. Since the beginning of the Ukraine war in 2022, the country has been buying up Russian aluminum that was shunned in the West. Imports of Russian aluminum primary by China grew from 291,000 tonnes in 2021, to 1,13 million tonnes in 2024. In 2025, the pace of growth has increased again. Imports increased by 48% on an annual basis to 741,000 tonnes in January-April. The structural changes in aluminium supply are the main reason for China's appetite to import metal. The country's smelters have reached the annual cap set by the government of 45 million tonnes. Since the beginning of the year, the national annualised run rate has remained at around 44 million tons. The domestic market for primary metals is tightening up against a backdrop that includes a robust demand from solar energy. The Shanghai Futures Exchange has seen stocks fall to their lowest level in 16 months, 110,000 tons. Also, the curve for forward trading is now backwardated. SCRAP WARS China's stated strategy is to increase secondary production of recyclable metals to compensate for the cap in primary metal production. This may become more difficult as recyclable materials flow to the United States, because they are exempted from the tariffs of 50% imposed by Donald Trump's administration. The second major structural shift could lead to a tightening of the global scrap supply, which would force processors outside the United States to use more primary material. The scrap flows to China, which is the largest buyer in the world, could be further disrupted by the European Union imposing export tariffs. This would stop what they call "scrap leakedage". The United States is now the threat. Originally, it was China. Testing Availability This latest mega-trade to grab a piece of the available stock is just the latest in an extensive history of mega-trades. It doesn't seem to be drawing any metal into the system. This story may have a Russian twist, but it is also a test to see if the market can be supplied. So far, supply has not been satisfactory. The LME stock churn will appear more like a signal of a downtrend in the LME's inventory the longer it continues. The author is a columnist at
Brent crude premium to Dubai reaches highest level since September 2023
Market sources reported that the Brent crude premium over Dubai, the Middle East benchmark, soared to $3 a barrel Wednesday. This was its highest level since late September of 2023, according to LSEG's data.
Three oil brokers reported that Brent's Exchange Futures for Swaps to Dubai for August were traded on Wednesday at a premium price of $3.33 per barrel.
Brokers who requested anonymity said that the overnight rise in Brent crude, coupled with a solid market structure, has kept the EFS supported during recent sessions.
Brent crude closed over 4% higher Tuesday, despite the fact that major oil and gas supply and infrastructure have been spared significant impact.
premium
On Monday, the spread between the Brent crude first-month futures contract and that for delivery six month later was at its highest level in nearly two years. Backwardation is a market structure where near-term prices are greater than those for later dates. It reflects supply concerns.
The market participants were still concerned about the possibility of disruptions to the oil supply in the Strait of Hormuz. This is the route through which one-fifth of all seaborne crude oil passes.
In recent sessions, Middle Eastern crude benchmarks also gained in value. Dubai's cash-premium reached its highest level in over two months last week.
Chartering costs
Tankers
The cost of shipping oil from the Middle East into Asia has also increased.
The geopolitical risks and expectations for greater OPEC outputs are pulling apart the EFS spread, said Emril jamil, a senior analyst in the oil sector at LSEG.
He added that "the widening of the gap will continue as long as tensions escalate" as this is the default situation.
(source: Reuters)