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Helen Jewell explains why gold and defense stocks fell as the war broke out.
Investors tend to raise money first, and then ask questions. Investors who are aware of this phenomenon will not have a problem. It's a great opportunity. Gold dropped by nearly 4% in the four days following the first U.S./Israeli strike on Iran. So did European defence stocks. It seems strange. Gold has been historically a safe investment in turbulent times. Conflicts are usually the driving force behind military equipment demand. This is due to investor positioning, or more specifically, crowded trading. Many fund managers will execute a “program trade” to de-risk quickly and mechanically in order to raise money when a market-jolting, large event occurs. Instead of selling only certain positions, they try to raise cash by reducing a percentage fixed across all their holdings. The positions that have increased the most are sold most. This is why, when magnified across the market, assets that should benefit from an event can fall the fastest. CROWDING OUT In the last few weeks, gold has been the most obvious example. BlackRock data shows that in 2025, a record amount of money will flow into commodity ETPs. BlackRock data shows that $83 billion of the $100 billion in new money went to gold products. In January, $15.5 billion was added to gold ETPs - the largest monthly inflow in recent memory. Bank of America data shows that gold was trading 30% above its 200 day moving average before the Middle East conflict. This is the highest of any major asset. Shortly, gold was a very busy trade. It was because of this that its value dropped when war broke out, despite the fact that it had a reputation for being safe. The same is true for European defense companies. The index of the industry has risen more than three-times as much as the European market in the last 12 months. Some companies have soared since the beginning of the Ukraine War. Rheinmetall in Germany, for instance, has risen by 1,700%. In January, flows into an iShares European Defence ETF reached a record high. This sector, which was a 'clear beneficiary of rising geopolitical conflict', weakened immediately after the war began. It was obvious that this was due to crowded positioning and not fundamentals. What's next? In a crisis, de-risking can be the easiest part. What to do next is the harder question. Investors should ask themselves a few key questions. Is it essentially the same, in which case the original positions can be restored? Or is the world radically different? Consider first two categories of wounded assets: European defense contractors and gold. The case for European defense companies is still pretty good, if not even better than at the end February. Our analysis on the gold front shows that mining firms are poised to generate record-breaking cash flows, while trading at a discount to their historical average valuations. This thesis is still valid, given that recent gold price weakness wasn't likely driven by a fundamental change in investor sentiment. You can also take a look at South Korean chip stock prices, which have fallen sharply in value since the beginning of the war. These stocks were the big winners of the first two month of the year. They rose more than 50%. This was due to the massive amount of capital being deployed by large technology companies for artificial intelligence hardware. Why did they retreat? The war did not change much for the companies themselves. They were located in a region that was vulnerable and, perhaps most importantly, the stock prices had risen the most. In February, Korean stocks were trading at a level nearly 40% higher than their 200-day moving average. The momentum score was also the highest of any market segment. Companies like SK Hynix gained 400% in the previous 12 months. A retreat was to be expected. The retracement in the last few weeks was excessive, especially for large and cash-generating firms. Asia's dependence on Middle East oil - and the rise in Asian fuel costs - are serious risks for the region. It could potentially affect the outlook of these companies if it persists. In some cases, the crisis can change fundamentals in a short time, which can lead to mismatches in?price' and 'value. This may be true for oil companies. Brent crude has soared to over $100 per barrel after Iran closed the Strait of Hormuz, through which a fifth of world oil used to transit. Oil producers' shares haven't kept up with the price of crude oil. This 'gap' could present an opportunity. It is important to know the difference between a fundamental shift and a technical recalibration when navigating markets. Helen Jewell is the author of this article. She is International CIO for Fundamental Equities at BlackRock. This column is intended for educational purposes and should not be taken as investment advice. This column is interesting to you? Open Interest (ROI) is your new essential source of global financial commentary. Follow ROI on LinkedIn, X 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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Oil gains, stocks fall as Mideast ceasefire prospects dominate
Investors treaded carefully amid the rapid pace of Middle East developments, as Asian stocks fell in choppy trade. Oil prices rose. Iran said it would consider a U.S. offer to end the conflict. This month's widening conflict has shaken the global markets, sending oil prices skyrocketing, reigniting inflation fears, and upsetting global interest rate expectations. Investors are on edge due to the contradictory messages sent by both sides in regards to ceasefire talks. U.S. president Donald Trump said Iran is desperate to reach a deal, while Iranian foreign minister Abbas Araqchi claimed that there has been no dialogue with the U.S. or negotiations. However, various messages have been exchanged via intermediaries. The Nikkei index of Japan reversed its early gains and traded 0.7% lower. South Korean stocks dropped 2.7%, while Hong Kong's Hang Seng index fell 1.7%. MSCI's broadest Asia-Pacific share index outside Japan fell by more than 1%, resulting in a decline of 9.5% this month. This is its largest monthly drop since October 20,22. Stock?futures indicate a lower opening in Europe. U.S. futures for stocks were also lower. Charu Chanana is the chief investment strategist for Saxo. She said, "It appears that the market's relief trading has started to wobble." "Traders also remember that one peace rumour doesn't undo inflation and rates damage in the system." After a nearly month-long conflict triggered by U.S. and Israeli strikes against Iran in late Feburary, Iran has effectively closed?the Strait of Hormuz. This is a conduit that carries a fifth of the world's oil and natural gas. Crude prices have risen?above 100 per barrel due to the disruption. Brent crude futures stood at $104.53, up over 2% for the day and set to see a 43.6% increase in the month. The dollar held steady near recent highs, and was on course for a monthly gain of 2%. This cemented its status as a preferred safe haven. Iran's latest remarks suggest that Tehran is willing to negotiate a ceasefire if it can meet its demands. The U.S. initially ignored a 15 point ceasefire proposal that the U.S. had sent to Iran. It will be difficult to reconcile the goals of the U.S., Israel, and Tehran, said Matthias Scheiber. He is the senior portfolio manager at Allspring Global Investments and head of their multi-asset team. "We think that there's a good case for higher energy prices at the moment." Fear of an inflationary 'aftershock' has pushed traders into pricing out any chance of Federal Reserve rate cuts this year. This is supporting the dollar. The bets on U.S. interest rate increases briefly gained momentum, but they have since been reduced. The yield on Japan’s two-year Government Bond hit its highest level for 30 years, as traders consolidated their bets that the Bank of Japan would raise interest rates as soon as April. The European Central Bank's Christine Lagarde said on Wednesday that she would consider raising interest rates if the war in the Middle East continues to drive up inflation for a while in the Eurozone. Lagarde said in Frankfurt that if the shock leads to a large but not too persistent overshoot, then a measured adjustment of policy may be warranted. The euro remained at $1.1564, and sterling was $1.3362. The?yen was hovering at 159.44 dollars, close to the 160 dollar level that traders watch as a possible trigger for intervention. As the yellow metal continued to sell off, gold reversed its course and traded 0.3% lower. The gold price is set to drop 14% this month. This would be the steepest monthly decline in gold since October 2008. (Reporting from Ankur Banerjee, Singapore; editing by Shri Navaratnam).
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Official: drones from Ukraine damaged area near one of Russia's largest oil refineries, according to an official
A Russian official said on Thursday that a drone attack from Ukraine damaged an industrial area near one of Russia's largest?oil refineries. According to reports on Wednesday, at least 40% of Russia's capacity for oil exports has been halted following Ukrainian drone strikes, a disputed assault on a major pipe and the seizure or tankers. According to Alexander Drozdenko, more than 20 drones have been shot down in the northern Leningrad area. "The attack has been repelled in the Kirishi district." Drozdenko told Telegram that there was damage to the industrial area. Drozdenko ?did not specify what part of the ?industrial area was damaged, but ?the town of Kirishi is home to one of Russia's largest oil refineries, Surgutneftegaz's Kirishinefteorgsintez plant, which was repeatedly targeted by Ukraine last year. Industry sources claim that the refinery will process 17.5 million tons of oil (350,000 barrels a day) by 2024. This is 6.6% of Russia’s total refining volumes. The country produced 2 million tonnes of gasoline, 7.9 million tonne of diesel, 6.9 million tonne of fuel oil, and 600,000 tonne of bitumen. Two sources said that the Russian Baltic Sea ports of Primorsk, and Ust-Luga - major export outlets - suspended crude oil and petroleum products loadings following Wednesday's drone attacks by Ukraine. Russian officials claimed that earlier on Wednesday, a fire had broken out in Ust-Luga following a drone attack by Ukraine. (Reporting and editing by Guy Faulconbridge, Jamie Freed and Ksenia Orlova)
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South Korea raises fuel price caps but expands tax breaks to cushion the blow of Iran conflict
South?Korea is raising the cap on fuel prices at midnight on Friday and expanding fuel tax breaks in order to reduce the burden for consumers who are dealing with the aftermath of the U.S. - Israel war against Iran. Finance Minister Koo Yon-cheol announced that the operating rate of nuclear power plants would be increased to 80%, and the seasonal limit on coal?power stations will be removed. The prolonged Middle East conflict is roiling global energy markets, and affecting Asia's 4th largest economy. Koo stated that "as the Middle East War, which began late in February, enters its fourth weeks, the economic impact such as higher prices and supply disruptions, and increased volatility on the financial and foreign markets, are becoming more evident." He said that the government was prepared to use its resources in order to address "a grave situation". It could also take further action. The South Korean President Lee Jae Myung convened a meeting of high-level economists to discuss how to respond to an "unpredictable" situation, which he described as a result of a complex global supply network. South Korea is particularly vulnerable due to its heavy dependence on energy imports that pass through the Strait of Hormuz. This strait has been closed in effect since early March. The government is set to announce a new limit on fuel prices just two weeks after the previous ceiling was introduced to control prices at the pump. This ceiling was originally based upon the supply and the global oil price before the conflict erupted. Koo stated that in order to cushion the shock of energy prices, fuel tax cuts would be increased to 15% from 7% for gasoline and to 25% for diesel from 10%. The new export controls on naphtha will take effect on Friday at midnight. This is due to the disruptions that have been caused by the petrochemical industry in South Korea, which imports half of its material through the Strait of Hormuz. The Finance Ministry announced on Thursday that South Korea will buy back treasury bonds worth 5 trillion won ($3.32billion) to stabilize the market and redeem additional bonds with the surplus budget. It said that the government plans to increase monitoring of foreign capital flows after South Korean bonds are included in the global government bond index in a month's time.
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Indonesia's Agincourt claims it can resume its operations at Martabe Gold Mine after the government lifts sanctions
Agincourt Resources, an Indonesian gold miner, announced 'on Thursday' that the 'environmental?ministry has given it permission to resume operations at their Martabe mine. The mine was closed after allegations of environmental violations. Agincourt is one of 28 companies whose permits have been revoked after the government claimed that the firm was responsible for the environmental damage which worsened the floods last year in Sumatra. At least 1,200 people were killed. Astra International is the parent company of Agincourt. Astra's largest shareholder is Jardine Matheson. Agincourt spokesperson Katarina Sibirian said, "The company welcomes the decision of the Environment Ministry relating to the approval for the continuation of operations at the Martabe Gold Mine." Katarina stated that the company was making preparations, will adhere to all regulations, and is "committed" to safety and environmental standards. She added that operations had not yet resumed. Since December last year, mining operations in Martabe have been suspended. The Indonesian environment and energy ministers did not respond to requests for comment. According to Bloomberg Technoz, the deputy energy minister Yuliot Tanjung said that the mining permit had been restored. The ministry is still evaluating the company’s mining quota. (Reporting and editing by Bernadette Cristina and Stanley Widianto)
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France is among the nations that are interested in Australia's critical minerals, says Australian Minister
France is one of the countries that will invest in critical Australian minerals projects, according to Australia's Resources Minister on Thursday. Canberra's framework agreement with the U.S. encourages nations with advanced manufacturing industries to secure access to supply. Australia is on a mission for the past four years to create an industry that will produce?minerals? like rare earths, which are essential to technologies in future such as electronics and defense. Countries want to diversify away from China as their dominant supplier. Australia signed agreements with Japan, South Korea and India as well as France, Germany, Britain, France and Germany for cooperation in the sector. Madeleine King, Australian Resources Minister, said in an interview at the Minerals Week Summit in Canberra that "since the framework agreement with America" other partners have taken a new urgency in ensuring they too have access to vital minerals. She said that France is becoming more and more interested. France is involved at a policy level and has a financing framework, such as through Bpifrance Assurance Export. However, unlike the U.S. or Japan, it has not announced large-scale funding for Australian critical mineral projects. The French Trade Commission in Sydney didn't immediately respond to an inquiry for comment. Australia seeks billions more dollars in investment to fund?49 mine projects and 29 midstream projects in a critical minerals sector, which is expected to generate A$18 billion ($12.52billion) in?export profits in the financial period starting July 1. Australia joined the G7 Critical Minerals Production Alliance this month to advance its growth goals. After eight years of negotiations on Tuesday, Australia signed a free-trade agreement with the European Union. This could ease EU access to Australian essential minerals, but the EU did not announce a list of detailed investment projects, as it had done with the U.S. DECADES OF INVESTMENT King stated that Australia has committed A$28 billion to the sector's development since the current government took office in May 2022. The country may have to continue to support the industry for many decades. She said, "If you compare timelines, (China) took 40 years." "We'd like to get it done faster." We do have to consider it as a long term proposition. She said that the?Australian Government supported its massive iron ore and liquid natural gas markets in order to help them get off the ground. If anything, it might make it more difficult for critical minerals. Australia has developed a A$1.2 billion strategic reserve to provide antimony, gallium, and rare earths for its partners. It is expected to become operational in the second quarter of this year. King stated earlier this week that the reserve would "no doubt" include a price floor, but it will be structured so Australia can reap rewards in case prices rise. She added, "When there's an upside, government should be able to receive some of this benefit but also leave this part of the agreement." The U.S. also has a 12-billion-dollar stockpile of minerals, known as Project Vault. She added that details are still being discussed. ($1 = 1.4391 Australian dollars) (Reporting by Melanie Burton; Editing by Jamie Freed)
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The sale of used EVs in Europe is on the rise as a result of the Iran War and higher petrol prices
Online car platforms report that the spike in petrol prices caused by the war in Iran is driving consumers to switch from combustion engines. Terje Dahlgren is an analyst for?Norway’s largest used-car marketplace Finn.no. She said that there's currently a 'electric car bonanza' in the used market. The conflict, which began on February 28, disrupted an important shipping route that transports roughly 20% of the world's oil supply. The European Commission's data shows that the cost of gasoline in the European Union increased 12% between February 23 and March 16 to $1.84 ($2.12) a litre. Aramisauto, a French online used car retailer, said that its share of EVs sales nearly doubled between the week beginning February 16 and?the week commencing March 9 rising from 6.5% to 12.7%. The company, which is majority owned by Stellantis and was a major player in the auto industry, saw a similar change when Russia invaded Ukraine, and energy prices increased, said CEO Romain Bocher. He said that "as soon as the price of petrol passes 2 euros per litre, it leaves a lasting impact on people's mind." "We're seeing an increase in interest, which is translating into orders for EVs and Hybrids." In the same three-week period, Aramisauto's petrol models fell from 34% to 28%, and diesels from 14% to 10%. New-car buyers will also gravitate to EVs and Hybrids if fuel prices in the U.S., Europe and Asia remain high. In their marketing, EV manufacturers are already emphasizing the price of petrol. In France, MG owned by China SAIC is running a series of?social media ads stating that "it might be time to rethink your driving style". The consumers seem to be responding. Olx, based in Amsterdam, said that customer inquiries for EVs jumped on its marketplaces across France (50%), Romania (40%) Portugal (54%), and Poland (39%), while growth was "accelerating consistently across all markets". Christian Gisy, Olx's CEO, said that the interest in electric vehicles was already on the rise before recent events. The instability seems to have accelerated the transition that was already in progress. The used-EV market in Europe has also expanded. The proliferation of battery-health certifications and a wider variety of models have addressed buyer concerns regarding second-hand EVs. This has helped to support sales before the war even began. Used EVs are often sold quickly in response to changes in the market or sudden increases in fuel prices. They can be up to 40% less expensive than new models, and they're available for immediate driving off of the lot. Alastair Campbell is vice president for growth at British automotive data firm Marketcheck. Marketcheck provided data to? Marketcheck's data shows a "clear, sustained increase" in the sales of used EVs since the start of war. The largest used car websites in the Nordics - owned by Norway's Vend- also see a sharp increase in EV sales. Blocket in Sweden saw EV sales increase by 11% compared to the previous two-week period, and views of EV models rose 17%. Marcin Stepman, Blocket's car expert, said: "We are seeing a clear trend where people are actively searching for fuel-efficient alternative cars." Denmark follows a similar trend. The local used car platform Bilbasen reported an increase in searches for 'EVs. Car analyst Jan Lang cited higher petrol prices as the main reason. Mobile.de, Germany's largest online?market for cars, reported that the number of EV searches has tripled from 12% in March to 36%. Car dealers also received 66% more enquiries about used EVs compared to February. Mobile.de stated that "high gasoline prices currently lead to an increase in demand for electromobility."
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Rising inventories of copper outweigh Mideast ceasefire hope
After a brief dip in prices, copper prices fell on Thursday. This was due to rising'stocks' and weakening consumer demand, particularly in China, the world's largest consumer. Investors were also waiting for clarity about the possibility of ceasefire?in the Middle East. Benchmark 'three-month' copper on the London Metal Exchange dropped 1.17% to $13,177 per metric tonne by 0341 GMT, after finding some help from a weaker dollar the previous day. The Shanghai Futures Exchange's most traded copper contract was down by 0.03% to?95.160 yuan per ton ($13.789.31), after reaching its highest price since March 19, at 96.590?yuan. The red metal, used in construction and power plants, was under pressure as stocks in LME approved warehouses were increasing. The market reached an eight-year high of 361,075 tonnes on Wednesday. This is a 153% increase since the start of this year. After a flurry of dip-buying, traders said that some Chinese consumers had entered the market to restock. Investors are also closely following developments in the Middle East conflict, which has caused turmoil on energy markets and threatened economic growth worldwide. Iran's Foreign Minister said that the country is reviewing the U.S. proposal to end the war. This suggests that Tehran may be willing to negotiate, even though its initial response was negative. Other LME metals saw a?0.45% drop in aluminum, a 0.55% fall in lead, tin fell 1.2%, and zinc dropped 0.7%. Nickel also slipped 0.34%. Other SHFE metals, such as aluminium, lead, and tin, declined by 0.46% each, while zinc fell 0.22%. Nickel outperformed the other metals with a 0.5% gain as concerns about supply grew after Australia's Nickel Industries announced?on Thursday that it had?suspended its Hengjaya Mine in Indonesia following an accident this week.
MORNING BID EUROPE - Hope and Hormuz
Ankur Banerjee gives a look at what the day will bring for the European and global markets. The conflicting messages?from Iran & the U.S. about a possible ceasefire?in the Gulf have left investors reluctant to make major bets, as 'cautious optimism' around an end of the conflict is met with the sobering reality of?higher energy prices. Stocks have been fluctuating between gains and losses in Asian hours due to the uncertainty. European futures suggest a lower opening, but much depends on the rapidly-evolving Middle East. Here's the current situation: Iran has said that it is reviewing a U.S. ceasefire proposal but "has no intention" of holding negotiations to end the conflict. Donald Trump of the United States said that Iran was 'desperate to reach a settlement to end almost four weeks worth of fighting. The Strait of Hormuz is effectively closed and countries around the world are dealing with fuel shortages, supply shocks, and rising prices. South Korean President Lee Jae Myung urged the public to conserve electricity on Thursday, while the Philippines' energy regulator announced that it had suspended wholesale electricity spot markets across its three grids. Oil prices over $100 per barrel cast a shadow on the global economy. However, certain countries are more vulnerable and less equipped to handle rising prices. Investors have been doing the same thing all month. Sell stocks and bonds. What is the only safe haven? The dollar. The dollar. Since the U.S., Israel and Iran began their attacks on Iran on 28 February, foreign?investors sold $50 billion of regional stocks.?Tehran launched its own attack and a new front opened in Lebanon. Since the beginning of the war, Europe's dependency on oil imports is weighing on equity prices. The pan-European STOXX 600 has been under pressure. The broad index is down by more than 7%, while the S&P 500 is down by just over 4%.
The following are key developments that may influence the markets on Thursday.
GfK Consumer Sentiment in April
France: Consumer Confidence in March
Earnings: Porsche and Delivery Hero
(source: Reuters)