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France freezes spending to cover Iran crisis costs
French officials said that they would 'fully offset the economic impact of the Iran crisis' by freezing certain spending. They announced this on Tuesday as part of a new set support measures. The government will be hit with a surge in energy costs and higher bond yields after the Iran War began. This is expected to cost between 4 billion euro ($4.7 billion)?and 6 billion euro, while increased borrowing costs are responsible for 3.6 billion, according to Finance Minister Roland?Lescure. After a meeting of lawmakers, budget minister David Amiel said to reporters: "In light of the 6 billion euro cost we expect this crisis will have, we are?putting 6 billion in spending on hold." Sebastien Lecornu, Prime Minister of France, has promised to reduce the impact on the budgetary plan of the'measures taken to help households cope with the shock caused by the conflict in the price for energy. But the government is under increasing pressure to provide more assistance. Lecornu announced that emergency fuel subsidies would be increased for the farming and fishing sectors, and assistance would be provided to small construction firms as well as taxi drivers. Plans are in place to help an additional 3,000,000 low-income individuals who drive for work. Lecornu, a journalist, said that the philosophy behind our efforts is to ensure a robust growth and that certain sectors that are 'particularly dependent on hydrocarbons' are not negatively affected. Lescure said that France, with one of the highest budget deficits in the Eurozone, could only afford to support those who are most in need. The government has been under pressure by the 'far right' to reduce the value-added tax on fuels from 20% to 20%. Meanwhile, the hard left wants to cap energy prices.
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Major traders discuss markets at FT Commodities Summit
The following are some key quotes from traders and analysts at the FT Global Commodities Summit. MARCO DUNAND MERCURIA CEO You'd expect that China would try to secure more oil from other sources, given its dependence on the Strait of Hormuz. In the last two or three weeks, they have been selling crude oil aggressively. "China increased its oil inventories over the last few months, to 1.2 billion barrels. They have allowed refiners to use these commercial stocks." They may have been optimistic about their ability to reopen Hormuz, and they didn't feel the need to purchase crude oil now because you could buy it cheaper tomorrow. The decline in China's gasoline demand this year, which is 1 million barrels per a day lower than last year, is not due to the economic crisis but rather to electric vehicles. How long can China continue to do this? "About another three weeks, and then they might have to change their position." We engage in different directions. We've pre-financed more than $2 billion in metals from producers, and we will be doing much more. RICHARD HOLTUM is the CEO of TRAFIGURA "If you've lost about 15-20% in hydrocarbon supply over the long-term, then you must price the product to destroy around 15-20% of the demand. The price has to be set at that level to destroy demand. High prices are the solution to high prices." "We are experiencing a supply-shock. The wealthy countries will protect their consumers and manage their prices to ensure that it is a pricing issue and not a deliveryability issue. And the countries who can't pay will suffer the destruction of demand." RUSSELL HARDY, VITOL CEO "Today, all spare capacity is located behind the Strait of Hormuz. The impact is direct." The billion barrels of oil is baked now, because we have lost approximately 600-700 millions at this point, but it will take some time before things move again. This is primarily a problem in Asian economies. We're losing 12,000,000 bpd in hydrocarbons supply. We're refining 6,000,000 bpd less today than we did before the event. And we've lost 4,000,000 bpd in demand as a result either of restrictions in the Middle East, or the lack availability in places like Bangladesh and also due to a price impact. GARY PEDERSEN is the CEO of GUNVOR When you look at (the oil) market, it's clear that we have done significant damage to the inventory by eliminating 800-900 millions barrels. "As we now move the company to a partnership it has empowered many people." "We saw that the transition from partnership worked very well, filling in people's previous experiences and leveraging them," he said in reference to Gunvor?s approach to the Iran War and supply crisis. PABLO GALANTE, VITOL’S HEAD OF LNG "The market can't sustain this equilibrium over a long time... This equilibrium is based upon artificial demand destruction and cannot be sustained over a long period of time. Gas prices are mispriced from a physical point of views, and may be lower than you need to balance the European market. HELIMA ?CROFT, RBC CAPITAL MARKETS "I believe there is a chance, with all the military resources that are still deployed in (the Gulf) region, that you will see another round of escalation." It took a lot of time for the Iranian nuclear deal to be finalized in 2015. How can toll payments be made to Iran to reopen?Hormuz, and is it possible to pay them under sanctions?" SAAD RAHIM CHIEF ECONOMIST, TRAFIGURA "During the Ukraine Crisis, the oil?markets traded between $110 to $125 per barrel for much longer even though there was very little physical disruption or reordering in flows." "Even if we get a deal with Iran today, it is too optimistic to assume that everything will go back up to 100 percent." You've already lost a billion bbls at this point, even if the problem is resolved tomorrow. "If it takes another month, that's 1.5 billion." FREDERIC LASSERRE HEAD OF RESEARCH, GUNVOR It could take up to 3-4 months to realign your entire supply chain. He said that refining should be quicker, but it is still dependent on crude oil. Lasserre explained that the base case pricing is based on three scenarios: No reopening; partial reopening; and full reopening. In all three scenarios "crude will rebalance quicker than products. We still have some spare capacity on the refinery side, but we do not have any."
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As dollar yields and gold prices rise, the US-Iran tentative talks are a catalyst for a decline in gold.
Gold prices continued to fall during U.S. trade hours on Tuesday as the stronger dollar and rising yields put pressure on the price. Investors were also awaiting the outcome of tentative U.S. Iran talks, as well as Kevin Warsh’s confirmation hearing for Fed chair. At 12:28 pm EDT (1628 GMT), spot gold dropped 2% to $4724.31 an ounce, its lowest price in more than a week. U.S. Gold Futures for?June Delivery fell 1.8% to $4743.50. The U.S. Dollar gained, making greenback priced bullion more costly for holders of other currencies. Benchmark 10-Year U.S. Treasury Yields also rose by more than 1%. Bob Haberkorn is a senior market strategist at RJO Futures. He said that "stronger yields, the dollar, and a mix of signals about the Iran issue are all putting pressure?on gold." Gold is considered a hedge against inflation, but the non-yielding investment suffers when rates rise. Donald Trump stated on Tuesday that he does not want to extend Iran's ceasefire and that the U.S. Military is "ready to go" in the event of a failure to negotiate. Crude oil prices increased by more than 3%, as the Strait of Hormuz was largely at standstill. The rise in oil prices following the U.S.-Israeli war on 'Iran, launched on February 28th has raised fears about inflation. Investors were also focused on the Senate Banking Committee hearing regarding Kevin Warsh's confirmation as Fed chief. "Traders are going to be very attentive and paying close attention to the comments of (Warsh)." Haberkorn said that you can expect a lot of volatility with this hearing. (Reporting by Ishaan Arora in Bengaluru; Editing by Alexander Smith, Joe Bavier and Dita Pujara) (Reporting from Bengaluru by Ishaan arora; Editing by Alexander Smith Joe Bavier Diti pujara
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As the ceasefire expires, US and world stocks are agitated amid uncertainty over peace talks with Iran
Wall Street stocks fell, and global equities also declined as optimism faded over the peace talks. Also, the U.S. - Iran ceasefire was set to expire. The U.S. stock market?indexes fell, gold declined and U.S. oil?advanced. The U.S. Military announced that it had seized in international waters a tanker "linked" to Iran, in an apparent attempt to enforce a ban as the clock ticked towards the expiration of the ceasefire. Washington expressed its confidence that the peace talks between Iran and Pakistan would continue. Pakistan awaits confirmation from Iran on whether it will send a delegation to Islamabad in a second round for peace talks. Oliver Pursche is a senior vice president at Wealthspire in New York. He said: "It has become clear that the Trump Administration is looking for a way out and will negotiate so that they can claim victory." Investors in the United States and around the world are waiting for a positive outcome on Iran. EYES ON AI Amazon announced on Monday that it would invest up to 25 billion dollars in Anthropic. This announcement rekindled the interest in artificial intelligence stocks. Investors will be looking for signs that massive investments in the new technology are beginning to pay off as the reporting season begins. According to LSEG, analysts expect an aggregate 46.4% growth in tech earnings year-over-year. The Commerce Department reported that U.S. retail was more 'robust' than analysts had expected for March. However, the surprise was largely due to a 15.5% increase in gas station receipts because of a spike in prices related to the U.S./Israeli war against?Iran. Kevin Warsh, the U.S. president Donald Trump's choice to succeed Jerome Powell in the Federal Reserve Chair position, appeared before Senate Banking Committee as the next step towards confirmation. In his opening remarks, the former Fed Governor pledged that interest rate decisions would be "strictly" independent of politics. The Dow Jones Industrial Average dropped 34.99 points or 0.07% to 49,407.09; the S&P 500 fell 10.22 points or 0.15% to 7,098.71; and the Nasdaq Composite rose 1390 points or 0.05% to 24,415.85. EUROPEAN SHARES DROP, GLOBAL STOCKS RISE European shares fell amid a restrained risk appetite in advance of the ceasefire deadline. MSCI's index of stocks around the world fell 1.61 points or 0.15% to 1,070.38. The pan-European STOXX 600 fell by 0.77% while Europe's FTSEurofirst 300 fell by 19.9 points or 0.81%. Emerging market stocks increased 14.66 points or 0.92% to 1,615.04. MSCI's broadest index for?Asia-Pacific stocks outside Japan rose by 1.04% to 826.86. Japan's Nikkei gained 524.28 or 0.89% to 59.349.17. The U.S. Dollar edged higher on optimism about Iran?war talks and after retail sales figures signaled an economic strength. The dollar index (which measures the greenback versus a basket including the yen, euro and yen) rose by 0.19%, to 98.26. Meanwhile, the euro fell 0.25%, to $1.1757. The dollar gained 0.33% against the Japanese yen to reach 159.31. The yield on the benchmark 10-year U.S. notes increased 4.2 basis points to 4.292% from 4.25% at late Monday. The 30-year bond rate rose 2.2 basis point to 4.903%, from 4.881% on Monday. The yield on the 2-year note, which is usually in line with expectations of interest rates for the Federal Reserve, increased 5.9 basis points from 3.716% to?3.775% late on Monday. As traffic in the Strait of Hormuz was halted, oil prices recovered from an earlier drop. U.S. crude oil rose by 3.16%, to $92.44 per barrel. Brent was up by 1.64% to $97.02 a barrel. As the dollar strengthened, gold prices fell as investors awaited tentative U.S. Iran talks and Warsh’s Senate confirmation hearing. Spot gold dropped 1.4% to $4.752.02 per ounce.
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Goldman Sachs maintains 2026 copper price, surplus forecasts
Goldman Sachs maintained on Tuesday its forecast that the copper price will average $12,650 a metric ton in this year and their estimate of a 490,000-ton?surplus 2026 for the metal. The?bank warned of potential risks to?copper supplies if shipping disruptions through the Strait of Hormuz continued. The bank stated that the disruption combined with China's ban on sulphuric acids exports starting May 1 could cause a tightening of a market critical to copper production. Sulphur, and sulphuric acids are essential inputs in?solvent extracting and electrowinning. This process accounts for 17 percent of the global supply of copper. Goldman said that the Democratic Republic of the Congo (DRC) and Chile are the two countries most vulnerable to disruptions in sulphur flow. The U.S. and Israel war against Iran has affected?the supply of goods? and other materials as Iran has effectively closed the Strait of Hormuz shipping artery. The President Donald Trump stated on Tuesday that he does not wish to extend the current truce and that the U.S. Military is "ready to go" in the event of a failure to reach a deal. Goldman estimates that the DRC could lose 125,000 tons of production by 2026 if the supply chain delays continue beyond late May and June. In the bank's "adverse scenario", this curtailment will be offset by 140,000 tonnes of reduced copper demand due to a weaker global economy. Separately the Chinese ban on exports of sulphuric acids would threaten 200,000?tons (equivalent of 1% of global supply) of Chilean production, since the country was sourcing roughly a third its acid from China by 2025. (Reporting by Ishaan Arora in Bengaluru. Mark Potter edited the article.
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US bonds drop as retail sales data supports Fed rate-cut pause
U.S. Treasuries fell for a second session in a row on Tuesday, after data showed that retail sales were higher than expected in the month of March. This data reaffirmed expectations that Federal Reserve would?hold interest rate steady this year. However, the war against Iran remains a major focus for bond markets. In an interview with CNBC, President Donald Trump said that he didn't want to extend the Iranian ceasefire. He added that the U.S. had a strong negotiation position and was likely to end up with a deal he called great. Washington expressed its confidence that the talks with Iran would continue in Pakistan. A senior Iranian official stated that Tehran was considering participating. The benchmark 10-year yield (which moves in the opposite direction of prices) was up 3.4 basis point at 4.284% by late morning. The 30-year U.S. yields moved higher by 1.7 basis points to 4.898%. U.S. 2-year yields, which are a reflection of interest rate expectations, have risen 5.3 basis points to 3.769%. Treasury yields rose after the data revealed that U.S. Retail Sales jumped 1.7% in March after a revised upwards 0.7% increase in February. Retail sales were expected to rise by 1.4%, according to economists polled. The report showed that the war in Iran increased gasoline prices and receipts from?service station, while tax refunds encouraged spending elsewhere. Tom Simons is the chief U.S. economic at Jefferies. He wrote a note following the data, saying that he expected the headline retail sales figure to be "gaudy" due to an increase in gasoline prices and a rise in unit auto sales, but was surprised by other components' strength. He noted that there was no evidence to suggest that consumers have tightened their belts elsewhere because of higher gas prices. According to LSEG estimates, U.S. futures rates showed a 10 bps easing in this year. This is down from the 14 bps that were priced in late Monday. The yield curve flattened again for the second consecutive session as a result of the decline in odds. The difference between the yields on two-year bonds and those of ten-year bonds has narrowed to 50.6 basis points, down from 52.5 basis points late Monday. The curve exhibited a bearish flattening, where yields on shorter-dated bonds?are increasing faster than those on longer-term obligations. This suggests that the market doesn't expect the Fed will cut interest rates any time soon. BMO wrote in an email after the report that "Overall the data this morning was consistent with the perception of the U.S. economy remaining resilient" and that FOMC (Federal Open Market Committee), is justified in staying on hold until a "more durable turn is seen in the realized data." Market attention will now shift to the Senate Banking Committee's Tuesday hearing regarding Kevin Warsh’s nomination as Federal Reserve chair. The hearing is likely to be combative, after a Republican key said he would delay Warsh's nomination until the White House drops a criminal probe linked to Fed Chair Jerome Powell. Investors should also watch for signs that Warsh has changed his mind about cutting interest rates due to the escalating Middle East conflict and rising oil prices. (Reporting and editing by Andrew Heavens, Keith Weir, and Gertrude Chavez Dreyfuss)
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Genuine Parts is under pressure to reduce costs and supply chain due to Middle East conflict
Genuine Parts, a distributor of auto?parts in the Middle East, said that it expects to face near-term cost pressures due to the?concurrent conflict. However, after reporting a lower first-quarter result they reiterated their annual adjusted profit forecast. Genuine Parts CEO Will Stengel stated on a call after earnings that "the war impacts the flow of goods across the global distribution chain, adding inflationary costs to certain products and logistics, and adding additional uncertainty for customers." However, the company still expects to continue seeing a steady demand for maintenance from its industrial segment. Costs have increased across many industries due to rising labor costs, higher energy and raw material prices, and sustained pressures on?freight? and?logistics?. Genuine Parts has reported a lower profit for the first quarter. Net income dropped to $189 millions, or 1.37 cents per share. This was down from $194million, or 1.40 cents per share a year ago. LSEG data shows that quarterly revenue increased 6.8%, to $6.26 Billion, exceeding analysts'?average estimate, which was $6.17 Billion. The company reaffirmed its adjusted annual profit forecast of $7.50 to 8 per share. The morning trading of shares in the Atlanta-based company rose by?over 3 percent. Higher gasoline prices have also led some consumers to look at electric vehicles or fuel-efficient cars. Genuine Parts announced in February that it would split into two separate companies, separating its automotive and industrial businesses, after months of pressure by activist investor Elliott Investment Management.
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Rosatom talks to Turkish firms about stakes in Akkuyu Nuclear Plant
After the Iran War, Rosatom, the Russian state-owned nuclear corporation, has begun talks with Turkish companies about joint ownership of Turkey's first nuclear plant. The 4.8-gigawatt Akkuyu nuclear power plant in Turkey, which costs?more? than $20 billion, is funded by Russia. Rosatom, the sole owner of the project, can invite a partner to share up to 49%. Alexey Likhachev, Rosatom's chief executive officer, said: "We have begun substantive discussions with several Turkish companies about the parameters for participation in the capital." He added that there is a lot of interest from Turkish companies to participate in the capital share of this project. Rosatom has not been able to find a coinvestor for Akkuyu. A Turkish consortium which had agreed to participate in the project collapsed in 2018. No new candidates emerged. Likhachev stated that talks about Turkish investors buying a stake in Akkuyu had 'intensified due to the Iran War, which exposed the fragility the global energy balance. Likhachev stated that "the events in the Persian Gulf and the Strait of Hormuz force countries back to the necessity of having powerful, reliable electricity sources under their own ownership and on their territory." In 2010, Moscow and Ankara signed a deal to build a nuclear plant using four Russian VVER-1200 power reactors. However, the project was plagued by delays?and bureaucratic obstacles. Rosatom started construction in 2018. The original planned commissioning date of 2023 has been repeatedly pushed back to the end 2026. The project was under increased pressure after Moscow began a?military operation in Ukraine 2022. Although Rosatom wasn't targeted by Western sanctions but there are still risks regarding payments and other issues. Ankara says it is assisting in the efforts to unlock $2 billion of payments that have been'stuck' in a bank account with JPMorgan. Likhachev stated that all issues related to Akkuyu had been resolved. (Reporting and writing by Anastasia Lyrchikova and Anna Peverieri; editing by Guy Faulconbridge, Alexander Smith and Alexander Smith).
Gains in FOREX-US dollars on optimism about Iran and retail sales
On Tuesday, the U.S. Dollar?edged up on optimism about?the?U.S. The war with Iran will end in a ceasefire, and retail sales data from March showed a strong U.S. economic.
The U.S. Military said Tuesday that it had seized in international waters a tanker associated with Iran, its latest apparent attempt to enforce a ban, as time was running out for a ceasefire and the possibility of further peace talks is still in doubt.
Traders are confident that a deal will be struck with U.S. vice president JD Vance, who is expected to arrive in Islamabad tomorrow to discuss the end of the "war".
Adam Button is the chief currency analyst for?investingLive.
Dollar also temporarily bounced back after U.S. Retail Sales increased more than expected for March, as the war with Iran led to higher gasoline prices and a record increase in receipts from service stations. Meanwhile, tax refunds fueled spending in other areas.
Button said that the data from the U.S. tells a consistent tale of a decent increase. The war has obscured this fact, and it should have been a U.S. Dollar tailwind. I find it difficult to believe we will return to two price cuts in the coming year.
Fed Fund Futures traders currently only price in 36% of the odds that one 25-basis-point cut will occur this year.
Traders will also be watching Kevin Warsh's testimony before the U.S. Senate for clues as to how he.would guide monetary policies if he were appointed Federal Reserve chair.
According to prepared remarks that were released on Monday, Warsh, Donald Trump's nominee for the U.S. Central Bank, will say to lawmakers that he is "committed" to ensuring the conduct of monetary policies remains independent.
Some traders and analysts believe that Warsh will be more dovish in his new role than his previous comments suggest.
The dollar index, which measures greenbacks against a basket of currencies, including the yen, and euro, rose 0.1% to 98.17. Meanwhile, the euro fell 0.16% to $1.1768.
The dollar gained 0.19% against the Japanese yen to 159.09.
(source: Reuters)