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Hedge Fund leverage reaches five year high by buying bank stocks Goldman Sachs
Goldman Sachs data shows that hedge fund leverage reached a five-year peak last week. Speculators bought banks, trading firms and insurance companies, just after U.S. rates remained unchanged and before the U.S. attack on Iran's nucleus sites. On Wednesday last week, the U.S. Federal Reserve kept interest rates unchanged and said they are not in a hurry to reduce interest rates. On Saturday, the U.S. launched an attack on Iranian nuclear sites, sending oil prices to a record high on Monday. Further price increases are expected on concerns that a retaliatory Iranian action could include a closing of the Strait of Hormuz through which approximately a fifth of world crude oil supply passes. Gross leverage (a measure of hedge fund trading) rose to 294%. This is the highest since 2020. Leverage stood at 271.8% when the year began. Goldman Sachs Prime Brokerage Data, a note sent to clients, revealed that hedge funds increased their short positions in Europe and Asia while maintaining modest long positions in North American stocks. A short position is a bet that the stock price will fall. Last week, financial stocks such as banks, insurance companies, and trading firms were the most popular. These firms, especially banks, benefit from the higher interest rates. They collect payments for lending money to corporations and consumers. Goldman Sachs' note revealed that hedge funds purchased financial firm stock in North America, Europe and Asia but had a slight short position in Asia. It said that hedge funds also ended the week having a net-long position in energy shares. In Europe, returns have exceeded 10%. The note stated that global systematic returns had reached almost 12%. (Reporting and editing by Amanda Cooper, David Evans and Nell Mackenzie)
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Dollar firms as gold eases, but all eyes are on Iran's next move
Market participants were cautious on Monday, as the dollar remained firm. They also stayed alert for possible Iranian retaliation against U.S. attacks on Iran's nuclear sites. As of 0820 GMT, spot gold was down by 0.2%, at $3,359.99 per ounce. U.S. Gold Futures dropped 0.3% to $3375.20. Gold is now more expensive for foreign buyers due to the dollar's 0.4% rise against its peers. Ole Hansen is the head of commodity strategy for Saxo Bank. He said that higher energy prices may delay a Fed rate reduction and strengthen dollar. He added that "continued and numerous geopolitical uncertainty will likely continue to support and prevent prices from experiencing a deeper price correction." Iran and Israel exchanged air and missile attacks as the world awaited Tehran's reaction to the U.S. strike on its nuclear sites, and U.S. president Donald Trump suggested regime change in Iran. The U.S. dropped bunker-bustering bombs weighing 30,000 pounds onto the mountain that overlooks Iran's Fordow Nuclear Site. The U.S. attack on Iran's nuclear facilities has injected new uncertainty into the outlook of inflation and economic activity. This comes at the beginning of a week full of economic data, central banker comments and two days of Congressional testimony by Federal Reserve Chairman Jerome Powell. The U.S. Central Bank held its interest rates at the same level last week but reduced its outlook for future rate cuts due to an increasingly challenging economic outlook. Investors expect a 50 basis point Fed rate cut by the end this year. Bullion is more likely to perform in periods of low interest rates and uncertainty. Palladium rose 2.5% to 1,070.33 dollars, while platinum gained 2.3% to $1,293.90. (Reporting by Anushree Mukherjee in Bengaluru; Editing by Vijay Kishore)
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UK industrial plan focuses on clean energy and advanced manufacturing
The UK's industrial strategy, published on Monday, outlines a key reform that will reduce the electricity bills for thousands of businesses by 2027. Below are the main components of its plan. ADVANCED MACHINING Up to 3.76 billion pounds (2.8 billion pounds) will be invested in R&D programs over the next 5 years to stimulate innovation, automation and digitisation. CLEAN ENERGY INDUSTRIES By 2035, Britain aims to double the current levels of investment in clean energy industries. CREATIVE INDUSTRIES Create a 150-million-pound fund for growth and provide financial support to screen, music and video games. LIFE SCIENCES Making Britain the third largest economy in life sciences through investment and reforms, including 600 million pounds to fund a Health Data Research Service, which will create a secure and AI-ready platform for advanced health data. Professional and Business Services The government announced that it would include the sector for the first in a national industry plan, as it aims to capitalize on UK strengths in areas like accountancy and legal services. The government said that it would fund artificial intelligence, work with other governments to establish mutual recognition of professional qualifications in order to boost exports, and launch five new hubs for professional business services in England and Scotland. DIGITAL AND TECHNOLOGY The UK wants to be one of the three top places in the World for technology business development. It has promised reforms that will boost R&D, skills and improve regulations, as well as collaborate more closely with other nations and the private sector. It stated that it would prioritize frontier technologies, such as advanced connectivity and artificial intelligence. EU COOPERATION Britain announced that it would work more closely with the European Union to reduce red tape, make it easier for businesses to trade and to enable investment in North Sea projects. The strategy stated that "we will explore the UK's involvement in the EU internal electricity market as well as continue technical regulatory discussions on new energy technologies." ($1 = 0.7437 pounds) (Reporting by UK bureau)
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Gulf stock markets continue to grow despite regional conflict
Investors were anxiously waiting to see if Iran would respond to U.S. strikes on its nuclear sites. The price of oil has risen to its highest level since January, as supply fears were stoked by the United States joining Israel to attack Iran's nuclear sites. The market participants are expecting further price increases amid growing fears that a retaliatory move by Iran could include the closing of the Strait of Hormuz through which approximately a fifth of world crude oil supply passes. Saudi Arabia's benchmark stock index rose 0.7%. Al Rajhi Bank gained 0.6%, and Saudi Arabian Mining Company added 2%. Hani Abuagla is a senior analyst at XTB MENA and said that regional stock markets had recovered to a certain degree as investors saw the U.S. intervening in Iran's affairs, which could force Iran into peace negotiations. Dubai's main stock index rose 1%. This was led by blue-chip developer Emaar Properties, which saw a 2.4% increase and the sharia compliant lender Dubai Islamic Bank, which saw a 1.7% rise. Gulf States, which are home to several U.S. bases, were on alert Sunday. Their leaders called on all parties involved to exercise maximum restraint after U.S. attacks on Iran raised the possibility of an even wider conflict. Saudi Arabian and UAE nuclear authorities said that they did not detect any signs of contamination after the Iranian strikes. Abu Dhabi's index increased by 0.2%. Abuagla says that most markets have experienced a significant drop in value, and some investors may have even priced in the worst possible outcome. If the current conditions do not change too drastically, then we could see a market normalization. The index rose 1.3% in Qatar. The largest lender of the Gulf, Qatar National Bank, grew by 0.8%, while Qatar International Islamic Bank jumped 3.6%. (Reporting and editing by Alex Richardson in Bengaluru, Ateeq Sharriff in Bengaluru)
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Ukraine reports that seven people were killed and dozens injured in the Russian attack on Kyiv.
Officials from Ukraine said that Russian missile and drone attacks on and around Kyiv over the weekend killed seven people and injured dozens. They also caused fires to break out in residential areas, and damaged an entrance to a bomb shelter in a metro station. Tymur Tkachenko of Kyiv’s military administration said that at least six people died in the busy Shevchenkivskyi District of Kyiv, where a section of a residential building high-rise was destroyed. He added that four children were among the 25 injured in the attack. Tkachenko stated that "the Russians' style has not changed - they hit people wherever there are. "Residential building, exits from the shelters - that's Russian style." Moscow has intensified drone and missile attacks on Kyiv, and other Ukrainian cities, in recent weeks, as the talks to end this war, which began in February 2022 with Russia's full scale invasion, have failed to produce any results. Both sides deny that they have targeted civilians. However, thousands of civilians - mainly Ukrainians - have died in the conflict. Russia has not responded to the latest attacks. Ihor Klimenko, the interior minister of Kiev, said that people may still be trapped under the rubble. The overnight attacks in six out of the 10 districts caused extensive damage. "To be honest, I wasn't scared. "It was more like I was frozen in time," said Liudmyla, a 75-year old local resident. "You are frozen, thinking about all of it. UK VISIT The Ukrainian air force claimed to have shot down 339 out of 352 Russian drones, and 15 out of 16 missiles that were launched in an attack on four Ukrainian provinces. When visiting Britain, Ukrainian President Volodymyr Zelenskiy will discuss Ukraine's defense and put additional pressure on Russia in order to stop such attacks. The photos posted by Ukraine's State Emergency Service show rescuers guiding people away from burning buildings and structures in the darkness. Officials said that the entrance to the Sviatoshynskyi metro station, in Kyiv, was also damaged along with a bus stop adjacent. During the war, the deep metro stations of Kyiv were used as safe bomb shelters. Kyiv Polytechnic Institute reported that the attack caused damage to its sports complex, academic buildings and dormitories. Officials said that a woman aged 68 was killed in the wider Kyiv area, which surrounds the Ukrainian Capital. At least eight other people were also injured. Last week, hundreds of drones attacked Kyiv and killed 28 people. More than 150 were injured. Reporting by Pavel Polityuk, Gleb Garanich and Anastasiia Menko. Writing by Lidia Kelley in Warsaw and Aidan Lewis. Editing by Tom Hogue and Raju Gopalakrishnan.
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Aluminium outperforms Copper on Energy Cost Concerns amid US-Iran Tensions
On Monday, the most traded aluminium contract at the London Metal Exchange beat copper as U.S. attacks on Iranian military sites pushed up energy costs - an important cost factor for this energy-intensive metal. By 0700 GMT, the LME 3-month aluminium contract had risen 0.82% to $2,570.5 a metric tonne. After an initial rise, the most traded aluminium contract at the Shanghai Futures Exchange fell 0.24%. It now stands at 20,365 yuan (US$2,833.79) per ton. Comparatively, LME copper increased 0.07% at $9,640, while SHFE copper rose by 0.14% to 78,290 Yuan. Aluminum is more sensitive to energy prices and has therefore reacted strongly to oil price fluctuations. The key now is whether Iran will close the Strait of Hormuz, said a metals analyst in Beijing from a futures firm. He said that the Strait of Hormuz was crucial for the Middle East's bauxite, alumina, and power shipments. Power accounts for 40% of total costs in aluminium melting. Senior officials in the Trump administration warned Tehran not to retaliate after the U.S. struck key military sites on the weekend. Brent crude futures rose 2.44% to $78.89 per barrel as of 1122 GMT. This was the highest price since January. LME Zinc contract rose 0.7%, to $2,648 per ton. Lead gained 0.35%, to $1,999. Tin fell 0.7%, to $32,465, while nickel dropped 1.1%, to $14,850. SHFE tin rose 0.4%, to 261,880 Yuan per ton. Lead gained 0.4%, to 16,920 Yuan. Zinc was up by 0.3%, at 21,980 Yuan. Nickel fell 1.1%, to 117440 Yuan. Click or to see the latest news in metals, and other related stories. Data/Events (GMT 0800) EU HCOB Manufacturing, Composite Flash PMI, June 0830 UK Composite Manufacturing, Composite Services Flash PMI, June 1345 US S&P Global Manufacturing, Composite PMI, Flash June 1400 US Existing Homes Sales, May ($1 = 7,1865 Chinese Yuan) (Reporting and Editing by Sonia Cheema, Sherry Jacob Phillips)
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Dalian Iron Ore reaches a new high in a week on the back of improved China demand
Dalian iron-ore futures reached their highest level in over a week Monday, boosted by improved short-term prospects for the steelmaking component in China's top consumer. The daytime trading price of the most traded September iron ore contract at China's Dalian Commodity Exchange was 706 yuan (98.25 dollars) per metric ton. In the morning session, the prices reached 709.5 yuan - their highest level since June 13. As of 0717 GMT, the benchmark July iron ore traded on Singapore Exchange was up 0.36% at $93.85 per ton. According to Chinese consultancy Mysteel, hot metal production, which is a measure of iron ore consumption, increased 0.24% on a weekly basis to 2.422 millions tons as of 20th June. Everbright Futures, a broker, said: "Hot metal production is expected to remain stable in the short-term, which will support iron ore prices." Broker Galaxy Futures stated that the construction materials consumption in China has already weakened as we enter the off-season. The peak construction season is usually the spring, before the June rains that have dampened demand prospects. Mysteel, in a separate report, said that the capacity utilisation rate for China's electric arc furnace steelmakers dropped 2.2% from week to week to a low of 54.5%. It attributed this to the persistently negative margins. The dollar index rose 0.12% Monday, mainly due to safe-haven demand. Dollar-denominated investments are less affordable for holders of currencies other than the greenback. Stainless steel dropped 1.16% on the day to 12,390 Yuan, after falling to a low of 12370 yuan earlier in the session. Mysteel Global reported that "a new round of price reductions by major producers further weakened an already fragile market mood." The Shanghai Futures Exchange saw a decline in most steel benchmarks. Hot-rolled coils, rebar, and wire rod all declined. Coke and coking coal, the other steelmaking ingredients traded in a sideways manner.
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India's imports of soyoil fell to a four-month low due to port congestion in June
Industry officials have said that India's imports of soyoil in June will likely fall 18% from the previous month to their lowest level in 4 months. This is because congestion in a major port will cause vessels to be unloaded in July rather than June due to congestion. Nearly two-thirds (67%) of the world's largest importer of edible oils is met by imports. Delays in unloading ships could lead to a shortage on the local market, which would increase prices. According to Rajesh Patel of GGN Research and edible oil trader, the June soyoil exports will likely fall to 325,000 tons from an earlier estimate of 400,000 tonnes, due to congestion at Kandla Port. Kandla Port in Gujarat's western state accounts for one quarter of India’s total imports of vegetable oil. This is because many nearby edible oil refineries choose this port to import their products. "At the moment, edible oil ships are subject to waiting periods between 9-10 days. According to the list of incoming ships, this wait could increase to 15 days, said B.V. Mehta. He is the executive director of Solvent Extractors' Association of India. Mehta stated that delays result in high demurrage charges, which increase import costs overall and raise the price of edible oil for consumers. A New Delhi-based trader at a global trading house said that the congestion at Kandla also affects palm oil imports. However, any impact on their supplies will be minimal, as a significant amount is being discharged in ports in eastern India. India imports a lot of palm oil, mainly from Indonesia, Malaysia and Thailand. It also imports sunflower oil and soyoil from Argentina, Brazil and Ukraine. (Reporting and editing by David Evans; Rajendra Jadhav)
Now the ball is on Iran's court.
Wayne Cole gives us a look at what the future holds for European and global markets.
Trump is adding to the uncertainty of the world by involving the United States in yet another Middle East conflict. The word "bombs", or the announcement of an attack by a president on social media is not something that happens very often.
The U.S. government says that it is not at war, and will not escalate its actions if Iran achieves peace. It also claimed it did not aim to change the regime in Iran until Trump made a post on social media about this very possibility.
Tehran is now in control and hasn't yet attacked any U.S. sites, despite reports that its parliament had approved a plan to close the Strait of Hormuz. Iranian media reported that such a move will need to be approved by the Supreme National Security Council.
Polymarket has even published a book about the probability of Iran closing the Strait. The current figure is 47%. Now, every market analyst is an expert in how to shut down shipping lanes, bunker-busting bombs, and the complexities of enriching Uranium.
Market participants are hoping that this U.S. action will not escalate and, if Iran's nuclear plans really do get pushed back by several years, it might make the region more secure.
Analysts note that OPEC can add extra supplies if it wants to. Oil is up nearly 2% but still well below the early five-month peaks.
Wall St futures have fallen 0.3% after starting with a loss of 1%. European futures have also dropped 0.4%. The dollar is slightly stronger against the euro and the yen. This reflects the EU's and Japan's reliance on LNG and imported oil, as well as the U.S. position as a net-exporter.
Treasury yields have increased slightly. There are not as many bids for safe-haven assets. Fed fund futures, however, are down by a small amount, probably on the fear that a sustained increase in energy prices could lead to an inflationary spiral, just as tariffs begin to affect prices.
Powell will be grilled on this and Trump's threat to fire him when he appears before Congress on Tuesday or Wednesday. Powell's response to Fed Governor Waller suddenly embracing a rate cut in July will be fascinating, especially since the FOMC choir seemed to have been singing the same cautious hymn.
The markets still give a 16% chance that a July move will occur, and they prefer to bet 70% on a move in September.
Market developments on Monday that may have a significant impact
- EU and UK pmIs for June
ECB President Christine Lagarde's Introduction
- Appearances of Fed members Waller Bowman Goolsbee Kugler
(source: Reuters)