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ROI-Inflation-spooked rates markets have overshot: McGeever
The markets overshoot. And the recent dramatic increase in "bets" on higher interest rates due to the Middle East energy crisis is just the latest example: the move is logical but its magnitude is questionable. The Iran?war is not over and the markets are still 'in flux' as the dust settles after one of the most busy central bank weeks of recent years. Rates traders may want to take a pause and reevaluate. The abrupt change in global rates reflects concerns about the short-term impact on inflation of the soaring prices for oil and gas. Federal Reserve now has a higher probability of raising U.S. interest rates in this year rather than cutting them. The European Central Bank and Bank of England will also likely raise their rates multiple times starting next month. Zoom in on the shifts in Europe. On February 27, a day before the joint U.S. - Israeli strike on Iran, UK rate futures indicated 50 basis points of ease by the end of the year, or two quarter point rate cuts. This has now flipped into almost 75 basis point of tightening or three rate hikes. It is remarkable to see a 125-basis-point swing in just a few weeks. Euro zone futures are now pricing in two rate increases, from implying the ECB would keep its key policy rate at 2% throughout this year. This hawkish course could be realized. The policymakers have not recovered from the mistake they made in 2021-22 when they misread "transitory inflation". The?last two time they raised rates when oil was well above $100 per barrel, in 2008 and 2011, they were widely accused as making policy mistakes. Limits of 2022 Comparative Analysis Analysts are drawing comparisons between the current energy crisis and the shock caused by Russia's invasion in Ukraine? in February 2022, which helped to fuel the worst bouts of inflation on developed markets for decades. There are some key differences. Interest rates in February 2022 were significantly lower than what they are now. The G4 central banks' policy rates were near zero lower bound at that time. In addition, trillions of dollars in stimulus money for pandemic fighting and the explosion of economic activity following lockdowns also contributed to inflation in 2022. Early 2022, real interest rates were negative. The combination of super-easy fiscal policy and monetary policies meant that inflation was far from temporary. The U.S. inflation rate has not returned to its target despite the biggest hike cycle in over 40 years. Today, fiscal stimulus is on the agenda. Governments from Washington to Tokyo and Berlin are planning to cut taxes while spending heavily on energy and defense. These volumes are nowhere near as large as the pandemic-fighting package that was worth at least 10% GDP. GOLDMAN AND CITI STICK WITH THE U.S. RATE CUTS VIEW Goldman Sachs economists and Citi analysts are part of a shrinking group that is fighting the tide of forecast revisions. They also want the Fed to act quickly and raise rates in order to curb price pressures. Jan Hatzius, his team and Goldman still expect two Fed rate reductions this year. Andrew Hollenhorst and team from Citi are still calling for three. The argument is that any inflation will be temporary, perhaps lasting a few weeks, but the risks for growth and employment are much greater. They expect a temporary shock to the supply that will raise prices, but also deal a greater blow to demand. It's not impossible. The Purchasing Managers' Index data released on Tuesday revealed that the U.S. Private Sector output in March was at its lowest level in 11 months. Overall activity in Europe fell to a 10 month low. And activity in Britain grew at its slowest rate in six months. The rate markets are understandably on edge due to the "speed and magnitude" of the energy shock. It will be hard to justify raising interest rates when unemployment and growth are slowing, even if inflation is higher than target in the U.S. or Britain. You like this column? Open Interest (ROI) is your new essential source of global financial commentary. Follow ROI on LinkedIn and X. Listen to the Morning Bid podcast daily on Apple, Spotify or the app. Subscribe to the Morning Bid podcast and hear journalists discussing the latest news in finance and markets seven days a weeks.
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Boliden, Sweden's mining company, expects a hit in Q1 earnings due to seismic activity.
Boliden announced on Wednesday that it expected earnings for the first quarter of 2026 - before interest, taxes and depreciation - to be impacted by about 400 million Swedish crowns ($42.77m) due to production being impacted in its Garpenberg Mine because of abnormally high earthquake activity earlier this month. Swedish miner reported its first-quarter production was slightly less than 0.8 million tonnes, down from an initial?expectation that slightly more than 0.9 million tonnes. The company said that production in the worst affected part of the mine will not resume until 2026. Garpenberg said that until further notice, its production will be approximately 30% of its earlier guided capacity, which was 3.7 million tonnes per year. A copper and zinc miner stated that a "large part" of the mine's infrastructure, such as crushers, hoisting systems, and workshop, were not affected by the earthquake activity. The company stated that a large amount of electrical infrastructure, pressure air systems and ventilation have been damaged. This will require renovations, which are estimated to take a few weeks. The company that operates seven mines, five smelters, and five smelters throughout the Nordic region, Ireland, and Portugal, has said that seismic activity at Garpenberg is now decreasing, and mining production will start in the second quarter. Boliden reported last month that its fourth quarter adjusted earnings were below analyst expectations. However, it proposed a dividend higher than expected for 2025. Recent performance of the company has been improved by higher gold prices. This has increased realised revenue from precious materials collected as a byproduct during mining and smelting. The company also benefits from higher prices for zinc.
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Chilean antitrust watchdog approves Codelco - Anglo American mining plan
The antitrust regulator of the South American country has given the green light to a joint mining plan between Codelco and Anglo American for the Andina Los Bronces project. Chile is the top copper producer in the world. Anglo American is one of the major operators in this Andean nation. Codelco said that the project is progressing with the regulatory approval process. The project has already been approved by competition watchdogs from China, Brazil and South Korea. The remaining steps are the acquisition of environmental permits, creation of the joint entity and consultations within the local community. Codelco and Anglo American signed an agreement last September to operate their adjacent?copper mining operations together. The deal aims at generating a minimum of $5 billion in cost savings and increased production. The plan is to?combine certain operations?at Codelco’s Andina Mine and Anglo American’s Los Bronces Mine in the Andes Mountains of central Chile. This will increase production by?120,000 metric tons per year. (Reporting and editing by Inigo Alexandra, Will Dunham, and Natalia Siniawski).
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Trump to hit Iran harder if Tehran does not accept defeat, White House says
White House Press Secretary Karoline L. Leavitt stated that the United States issued a stern warning on Wednesday to Iran, saying President Donald Trump would strike 'harder' if Tehran refused to accept they had been "defeated militaryly". "President Trump is not a bluff, and he's prepared to unleash hell." Leavitt, in a briefing to reporters, said that Iran shouldn't?miscalculate" again. She said that if Iran does not accept the present reality, or if it fails to understand they are militarily defeated and will remain so, President Trump will make sure they get hit harder than they ever have before. The joint U.S. and Israeli war against Iran is now in its fourth week. Pakistan, Turkey, and Egypt have all made efforts to mediate a potential?negotiation? to end the conflict, but there was still uncertainty about where and when such talks would take place. A senior Iranian official said on Wednesday that Iran was still reviewing the U.S. proposal to end the war despite a negative initial response. He indicated that Tehran had not yet rejected it outright. Leavitt said that talks with Iran were still ongoing. "Talks continue. "They are productive," she said, "as President Obama stated on Monday. They continue to be so."
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Sources say that the Thyssenkrupp and Jindal Steel sale talks have failed due to pensions and energy costs.
Four people with knowledge of the matter said that discussions of a potential sale of Thyssenkrupp Steel Europe (TKSE) to Jindal Steel International may be cancelled due?to disagreements over pension liabilities and investments, as well as energy costs. The people say that while discussions over a possible sale of Thyssenkrupp Steel Europe are ongoing and could still lead to an agreement, a?deal is less likely now after nearly six months' worth of due diligence. One person said that the companies may decide to stop official negotiations as early as next month. Thyssenkrupp tried to sell TKSE a number of times in the past decade, pursuing everything including spinoffs, joint ventures and outright sales. If TKSE is not sold, it would be a blow to the plan of Thyssenkrupp's CEO Miguel Lopez. He wants to?turn Thyssenkrupp into a holding company by selling stakes in its various business units from car parts to clean-tech. The people who spoke to us said that a number of factors are complicating the talks, including a pension liability of 2.4 billion euro ($2.8 billion), which was a 'hurdle for past sales efforts. Also, there were differing opinions on the amount of future investment needed. The second source also said that Jindal Steel International has become increasingly uneasy over the rising cost of energy in Europe. The energy costs in Europe are already higher than those in the United States or Asia. They have now risen even more as a result the Iran War. Thyssenkrupp announced on Wednesday that confidential talks continued with Jindal Steel International, labour representatives, and other parties. The parties will need to agree on valuation, obligations, and future investments. Jindal Steel International (the?international arm?of Naveen Jindal Group) had no comment immediately. Earlier in the month, Lopez stated that the group would continue TKSE's restructure "with or without Jindal",?while Thyssenkrupp’s deputy supervisory Board chairman, Juergen Kerner said last week that talks had stalled. Lopez also stated that EU plans to protect the underperforming steel industry in the EU had increased investor confidence and strengthened Thyssenkrupp’s position in negotiations. Jindal Steel International made an indicative offer to TKSE in September. This included the completion of a new green steel production facility in Duisburg, and a commitment for more than $2.31 billion ($2.39 billion) in order to increase electric arc furnace capacities.
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US suspends antismog fuel regulations in an effort to lower pump prices
The Trump administration announced Wednesday that it will suspend anti-smog federal regulations for seasonal gasoline blends to combat the higher prices at the pump since the start of 'the war against Iran. Environmental Protection Agency allows retailers to sell cheaper formulations of gas, including mixtures containing 15% ethanol (known as E15) that are not normally allowed during the warmer months. The waiver is valid for 20 days, starting on May 1. It can be extended as needed by the agency. "We anticipate a possible disruption in the American fuel supply," EPA administrator?Lee Zeldin stated at a news conference held on the sidelines CERAWeek, an energy conference in Houston. At the press conference, he announced the waiver. A press release from the EPA stated that the?move would allow nationwide sales of ethanol-blend gasoline (E15) and "remove federal barriers to the sale of E10, which is gasoline blended with 10% ethanol across the nation." E10 is widely available all year round. Analysts believe the change will reduce retail prices by several cents a gallon. According to AAA, the average U.S. price of a gallon?of regular gasoline has risen by more than $1 in a single month. The global oil price has risen since the U.S. and Israeli war against Iran, as this conflict has blocked shipments through Strait of Hormuz. This is the main conduit for the world's crude oil and liquefied gas. The White House is trying its best to limit the political and economic fallout of the war. The 'White House has already announced the release of crude oil from U.S. Emergency Stockpiles and the easing sanctions against both Russia and Iran in order to increase the amount of their oil on the market. Richard Valdmanis, Chizu Nomiyama, Nia Williams and Costas Pitas edited the article.
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US issues waiver to expand E15 gasoline sales to ease pump price
The administration of President Donald Trump announced on Wednesday that it will issue a waiver to expand sales of gasoline blended with 15 percent ethanol (E15) in order to combat higher pump prices since the beginning of the war against Iran. The Environmental Protection Agency's move will allow retailers to continue selling E15, which is a blend that is not typically allowed during the summer months due to smog concerns. Analysts believe the change will reduce retail prices by'several cents a gallon. AAA data shows that the average U.S. price of a gallon is now?just under $3.98. This is up more than a dollar compared to a month earlier. The global oil price has risen since the U.S. and Israeli war on Iran. This is because the conflict has blocked shipments through Strait of Hormuz which is the conduit of a 'fifth of the world's crude and liquefied gas supply. The 'White House' is attempting to limit the political and economic fallout of?the war. The 'White House has already announced a release from U.S. stockpiles of crude oil and the easing of sanctions against Russia and Iran to make more oil available on the market. (Written by Richard Valdmanis, edited by Costas Pittas and Chizu nomiyama).
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French official: EU review of France's nuclear plan is expected to proceed quickly
An official from the French energy ministry said that the EU investigation into France's scheme of state-funded funding for six nuclear reactors is expected to move quickly and won't delay any projects. The new reactors will cost tens or even hundreds of billions of Euros and are a key part of France's plan for renewing its ageing nuclear fleet. The new reactors would add 10 gigawatts of capacity and the first one is expected to operate in 2038. The new plants would replace the old ones, and ensure future energy supplies for the rising demand in the coming decade, which is driven by data centres. An official stated that the European Commission will make a declaration by 'the end of march, which is the first step to 'the investigation into France’s state-aid package. Officials said that the process will be fast because it is based on models previously approved, such as the one used in financing the development of two reactors in Czech Republic. The official stated, "We are confident we?are still on time." EDF will make its final investment decision 'in the second half this year. Brussels fears that the six new power plants will further consolidate EDF, the dominant state-owned energy company. The company currently holds more than 75% France's net production of electricity. A thorough?EU investigation will also allow the Commission to build a solid case in the event that Austria's government, which is opposed to nuclear power, launches a legal action against the Commission for approving the deal. This, according some EU officials, seems likely. (Reporting and editing by Inti, Landauro and Hugh Lawson; Reporting by Forrest Crellin)
US oil prices increase as investors evaluate Middle East deescalation
U.S. Oil Prices rose in the early trade on Thursday. They recovered a portion of their previous day's loss as investors assessed prospects for de-escalation?in the Middle East. Iran also reviewed the U.S. proposal that would end the Gulf War, which has caused energy supplies to be disrupted.
U.S. West Texas Intermediate Crude Futures?climbed over $1 to $91.42 per barrel at the opening?and were 93 cents or 1% higher at $91.25 per barrel as of 2225 GMT.
WTI fell 2.2% on Tuesday.
A senior Iranian official said on Wednesday that Iran was still reviewing a U.S. plan to end the war in the Gulf despite a negative initial response. He indicated that Tehran has not yet rejected it outright.
White House Press Secretary Karoline Leavitt stated that U.S. President Donald Trump would hit Iran harder if Tehran refused to accept the fact that?the nation had been "defeated militaryly".
Iranian officials have publicly dismissed the idea of any negotiation with 'the Trump administration. The 'apparent delay' in responding to Pakistan after it submitted a '15-point proposal for Washington on behalf of Tehran, seemed to indicate that some in Tehran were considering the idea. (Reporting and editing by Edmund Klamann; Yuka Obayashi)
(source: Reuters)