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Bonds from MORNING BID America spoil the AI party
What's important in U.S. and Global Markets Today By Mike Dolan. Editor-at-Large for Finance and Markets Bond market crunch meets AI boom The bond market is'spooked' again by rising oil prices, inflation and interest rates, as well as the threat of increased government debt and higher interest rate estimates. The 30-year Treasury bond yields are at their highest level since 2007. Meanwhile, the 10-year Treasury yields are at their highest levels in over a year. Below, I'll go into more detail. Listen to the Morning Bid podcast. Subscribe to the Morning Bid daily podcast and hear journalists discussing the latest news in finance and markets seven days a weeks. BONDS DISGRACE THE AI PARTY Bond stress is spreading across the globe as G7 finance chiefs gather in Paris, France on Monday. Japan's long-dated government yields reached record highs Monday. European yields have reached their highest level in the last 15 to 20 year. In Britain, meanwhile, a new political drama is brewing amid brewing challenges against Prime Minister Keir starmer's leadership. In Europe and Japan, interest rates are likely to rise next month. There is a greater than 50% chance that the Fed will do so by the end of this year. Oil shocks in the Gulf are at the core of inflation and rate hike anxiety. The tensions in the Gulf are once again rising amid new?drone attacks, including one on a nuclear plant in the UAE. Meanwhile, the Strait of Hormuz is effectively closed for all but a small number of tankers. According to Axios, world crude prices rose above $110 per barrel on Monday after U.S. president Donald Trump warned Tehran the "clock was ticking". He also said he would be ready to discuss military options against Iran. The most alarming news is that year-end oil prices have reached over $92/bbl, their highest level in the war. The stock indexes, which had been buoyed by a roaring AI boom, mostly ignored the oil shock. But now, they've been knocked back from their record highs. The major U.S. stock indexes fell sharply on the Friday. Asian shares dropped on Monday, and Wall Street futures dipped before 'the bell. Nvidia’s results this Wednesday will dominate the agenda in the States as they are a major test for the AI market. Walmart and other retailers will provide insight into the U.S. consumers' reaction to the energy crisis. Investors and policymakers will be keen to monitor the impact of high mortgage rates. Chart of the Day G7 Finance Ministers expressed concern about public debt and the bond market's volatility when they met on Monday in Paris. This was in response to a sell-off in bonds triggered by concerns?over inflation risk from the Iran War. In the last week, the implied borrowing costs from G7 government bonds that have maturities longer than 10 years reached their highest level in 24 years. The 30-year U.S. Treasury rates also hit their highest levels since the 2007-08 banking crash. Watch today's events * U.S. NAHB Housing Market Index for May (10 a.m. EDT) The G7 Finance Ministers and Central Bankers will meet in Paris Want to receive the Morning Bid every morning in your email? Subscribe to the newsletter by clicking here. Follow us on LinkedIn, X and ROI. The opinions expressed by the author are their own. These opinions do not represent the views of News. News is committed to the Trust Principles and its commitment to independence, integrity, and neutrality.
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Tsingshan has asked some Indonesian nickel producers for a reduction in output to allow aluminium to be produced.
Three sources said that China's Tsingshan group has asked the nickel pig iron producers at Indonesia's Weda Bay Industrial Park to reduce output in June so as to "conserve energy" for aluminium production. This is a sign that the group's move into the lighter metal, aluminum, is beginning to squeeze the nickel operations. Sources said that Tsingshan sent the request to NPI producers last week, as the feedstock is a vital component for stainless steel. The company also prioritized aluminium due to the recent price increase. Tsingshan owns shares in the power plant of the industrial park. The move will redirect energy from the 22 NPI plants located within the area, including some owned by Tsingshan, to the single aluminium factory, which is co-owned by Tsingshan and Xinfa. The three sources refused to name themselves because they weren't authorized to speak in public and couldn't confirm the "extent" of the production cuts. The benchmark three-month aluminum on the London Metal Exchange is up more than 12% since the beginning of the Iran War, which has caused disruptions in shipments of metal through the Strait of Hormuz, and has damaged aluminium plants in the Gulf Region, where close to 9% of world supply comes from. Sources said that the rally had helped to widen margins for aluminium, which were already higher than those of NPI. NPI only has a margin of less than 10%. Tsingshan didn't immediately reply to an email request for comment. POWER - BOTTLENECK Tsingshan supplies the Weda Bay Park, which is capable of producing more than 700,000.0 metric tons of nickel in NPI per year, using captive coal-fired plants, according to a presentation made by Eramet (Tsingshan’s partner at PT Weda Bay Nickel) to investors. The park is located on Indonesia's Halmahera Island and also houses the Tsingshan - Xinfa _Juwan aluminum project with a capacity of 250.000 tons per year. NPI as well as aluminium smelting use large amounts of energy. Tsingshan’s expansion into aluminum?has increased the pressure on the power supply of the park, with captive energy additions lagging behind the smelter's development. Rachel Zhang, Morgan Stanley's head of China Materials Research, said that building a captive power station takes 2 to 2.5 years compared to less than one year for an aluminum?smelter. This will limit output below the nameplate capacity. She said that for Indonesian smelters the delivery time of power equipment has increased to 21 months, up from 18 months, in 2024. Costs have also increased by about 30%. (Reporting from Dylan Duan in Shanghai, and Lewis Jackson in Beijing. Editing by Kate Mayberry.)
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India's equity benchmarks tempered as Iran war concerns offset IT gains
India's equity benchmarks closed at the same level on Monday, as concerns about the Iran War offset a partial rebound in IT stocks. The general mood remained weak due to concerns?over the?weakening rupee, high energy prices, rising yields on bonds and escalating tensions related to the Iran conflict. Saudi Arabia reported intercepting three drones. A drone attack caused a fire to break out at a nuclear plant in the United Arab Emirates. U.S. president Donald Trump said Iran had to act "fast" to stop the U.S. and Israel war with Iran. The Nifty 50 closed 0.03 % higher at 23,649.95 and the BSE Senex?added 0.1 % to 75,315.04. The indexes dropped as much as 1.4% in the session. The rupee closed at 96.35 dollars per rupee, a record low. Small-caps and mid-caps both lost 0.2% and 1.3% respectively. IT index rose 2.4%, as expectations of better profits growth from companies with a high share of revenues in greenbacks grew. The index dropped by 5.7% in the previous week. The narrow recovery shows that sentiment is fragile in countries such as?India, which are heavily dependent on energy imports. As the Iran War has lasted for a third consecutive month, Brent Crude prices have risen to $110 per barrel, said Dharmesh KANT, head of equity analysis at Cholamandalam Securities. Consumer durables ?shed 1.8%. Amber Enterprises fell 15.6% due to weak results. Gland Pharma's March-quarter profits rose 97%, resulting in a 15.4% increase. Jana Small Finance Bank's shares fell 5.9% following the announcement that the TVS Group, led by Venu Srinivasan, would buy a stake of 5.64% in the lender via the issuance warrants worth 3.17 billion rupees at a 5.3% discount to the last closing price. Separately TVS Motor announced that it would buy 4,9% of Jana Holdings at a price of 1.93 billion rupees. TVS Motors dropped 5.1%.
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The Indian cooking fuel shortage is driving California's gas price up
There is a cooking gas shortage in India. Californian motorists pay $6 per gallon for gasoline. Both are symptoms of the biggest ever disruption in energy supply. The two are directly related and show the impact of the U.S./Israeli war on Iran. The near-closure of 'Strait of Hormuz by Iran has caused global oil trade to be in chaos, and cut importers off from?around a fifth of global oil supplies that crossed the waterway prior to the war. Oil buyers have been forced to burn down their stockpiles to deal with the global fuel shortage. The pain is being spread by some attempts to alleviate the shortages. For example, the Indian government has been trying to increase the supply of liquefied petrol gas. India is the world's most populous nation and uses LPG for its primary cooking fuel. New Delhi, cut off from Middle Eastern LPG that accounted for over 90% of India’s total LPG imports before the Iran War, has ordered refiners in New Delhi to increase LPG production. Refiners have reduced production of motor fuel additives, which are made from LPG. The shrinking supply of alkylates in California is a concern for the state due to the potential shortage of gasoline. This could be caused by the decline in fuel production, and refiners from Asia struggling to get Middle Eastern crude oil. California is a big fan of alkylates because they are cleaner burning than other additives and it requires a special gasoline blend to reduce the smog. Californian motorists are facing a double blow from the war. A slump in Asian fuel imports has hit the motor fuel supply chain and the Indian government's policy of conserving cooking fuel is making it difficult to obtain the additives needed for California's unique gasoline mix. Mason Hamilton, chief economics for the American Petroleum Institute, said that India's LPG supplies are being restricted by the Strait of Hormuz. Refiners in India are also producing and exporting fewer alkylates, which adds pressure to the already tight California gasoline markets. INDIA Prioritises Cooking Fuel The decision by Indian refiners to reduce alkylate exports couldn't have come at a more inconvenient time for California. GasBuddy analyst Patrick De Haan says that Californian motorists are already paying higher gasoline prices than they have since 2022 due to the global fuel crisis brought on by the war. De Haan stated that the more severe the shortage of alkylates becomes, the higher the prices could rise in California. California Energy Commission spokesperson said that California was aware of India's changing priorities, but had a good supply of gasoline, and other blending components. A spokesperson for the CEC said that the CEC does anticipate a shortage but is closely monitoring the situation. GasBuddy's data shows that California's average retail price for motor fuel was $6.14 on Friday. It had been $6.16 per gallon over the past three years on May 7, as gasoline stocks in California hovered near records lows. De Haan stated that prices could cross $6.50 in the next few weeks. U.S. laws require cleaner gasoline blends in the summer peak season. This increases costs. California has the most stringent U.S. mandate which raises costs compared to the rest. GasBuddy data shows that the average national gasoline price in the United States was $4.52 per gallon on Friday. India has little to do to ensure that California continues to receive alkylates. There is a severe shortage of LPG in California. People have queued up for hours just to buy LPG cylinders. Restaurants and businesses have been warned that they may be forced to close. Reliance, the operator of Jamnagar's world-largest refinery, announced this month that it would reduce alkylate production and exports in order to maximize LPG output. Kpler data shows that India's alkylate exports in April fell to 33,000 barrels a day, which is about half the 61,000 bpd exported by March. This was the lowest level since October 2023. FEW ?GOOD OPTIONS California Governor Gavin Newsom, who is also battling LPG shortages in New Delhi, has limited options to stop pump prices from increasing further while the Iran War continues. De Haan stated that any temporary measures, such as tax exemptions, to lower fuel costs would increase demand. This, in turn, would exacerbate the alkylate scarcity and cause even more sticker shock for consumers. De Haan stated that "you can't add more pressure to a system already struggling under the weight it is carrying." GasBuddy's De Haan stated that Newsom's only option to lower California's gasoline prices could be to relax the state's fuel specs to reduce the use of alkylates. His hands are bound. De Haan stated that the only option he had was to make this decision. CEC spokesperson stated that the CEC did not believe a waiver on the blending requirements will help the state. Reporting by Shariq Khan in New York, Mohi Nrayan in New Delhi and Trixie Yap, Singapore; Editing done by Liz Hampton & Rod Nickel
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The Kremlin has "serious expectations" for Putin's visit to China
The Kremlin announced on Monday that Russia had high expectations for President Vladimir Putin's visit to China this week. Both sides will use the trip to develop their "privileged partnership". Putin will visit China on Wednesday and Tuesday, less than a fortnight after U.S. president Donald Trump visited the country to meet with President Xi Jinping. Dmitry Peskov, Kremlin spokesperson, said: "We have high expectations for this visit." Since the West imposed sanctions on Russia to punish it for its war in Ukraine, the 'no limits' partnership between China, the world’s largest producer of natural resources, and Russia has grown. Peskov stated that "we and our Chinese partners refer to it as an especially privileged and strategically important partnership." He said that the Russian delegation would include relevant?deputy premier ministers, ministers of government and company leaders. Peskov answered the question by saying that plans would be discussed regarding the proposed Power of 'Siberia 2' gas pipeline. This could deliver 50 bcm (billion cubic meters) more per year via Mongolia from Russia's Arctic Gas Fields to China. He replied: "All issues which are on the economic agenda of our bilateral relations will be dealt with." (Reporting and writing by Dmitry Antonov, Editing/reviewing by Mark Trevelyan/Guy Faulconbridge).
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Italy warns EU that it could pull out of SAFE Defence Scheme without budget flexibility on energy
Italy may not be able to access the SAFE financing scheme of the European Union for defence if budget rules on energy spending aren't more lenient, said?Prime Minster Giorgia Meloni in a letter sent to EU Commission president Ursula von der Leyen. The Security Action for Europe instrument (SAFE), backed by EU budget, is a joint loan scheme that helps member states reach more ambitious NATO expenditure targets. Meloni escalated her diplomatic efforts with the EU by urging the Commission to give member states the same amount of budget flexibility to reduce the soaring energy costs that is currently permitted for defence expenditures. Meloni, in a letter sent late Sunday to the. It would be very difficult for the Italian government to justify the SAFE program to the public without this political consistency. The "escape clause" allows the European Union to allow countries to exceed their deficit limits, either to increase defence spending or to address advers economic conditions. The budget flexibility for defence spending would last four years, starting in 2025. However, any increase in deficits through 2028 must not be more than 1.5% of the national output each year. If the clause was extended to include energy expenditure, Italy could potentially fund aid measures worth over 30 billion euros (34.90 billion dollars) for firms and families. Rome would have to 'drop its current plans' in order to reduce its budget deficit under the EU ceiling of 3% GDP this year. According to the EU, energy crisis does not justify deviations from budget rules. Last month, Italy warned that it might not be able honour its commitments for boosting defence spending because of the need to combat surging energy costs. Meloni wrote von der Leyen: "We can't justify to our citizens the fact that the EU allows financial flexibility to secure and defend the country in the strictest of terms, but does not protect workers, families and businesses against a new energy crises that could deal a serious blow to the economy."
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Oil prices rise and global stocks fall as bonds falter
The global share market fell on Monday, as new drone attacks in the Gulf pushed oil prices and bonds yields higher. This stoked inflation concerns in a week where the tech bull will be tested with?earnings by Nvidia. The United Arab Emirates reported that a drone attack caused a fire at a nuclear plant. Saudi Arabia also reported intercepting three drones. The Strait of Hormuz, which is vital to the oil and gas industry in the world, remains closed for all but a small amount of shipping. This is because Tehran wants to formalise control of this waterway. George Lagarias is the chief economist of Forvis Mazars. He said, "Markets are currently panicking because they are pricing in the possibility of the Strait of Hormuz remaining closed." Brent crude was up about 1% to $110.50 per barrel. U.S. crude rose 1.2% to $106.72 per barrel. Importantly, September futures rose?above 100 and December reached a contract high. Markets were bracing for prolonged shortages. The G7 finance ministers will meet in Paris to discuss the Strait of Hormuz, and the critical raw materials supplies. Concerns that energy prices will continue to rise and drive inflation hit the global bond markets again on Monday. The yield on U.S. 10 year notes reached a 15-month high of 4.631% after soaring 23 basis points in the past week. The yield on 30-year bonds has reached 5.159%, after a jump of 18 basis points in the last week. The yield on Japan's 10-year bond reached a level not seen since 1996, as the government announced plans to issue new debt in order to "fund" a planned budget increase to help cushion the economic impact of the Iran War. Germany's 10-year yield has reached a level that it has not seen for 15 years. Lagarias of Forvis Mazars stated that "as long as it is not a credit-related event and we do not have any evidence to call it a credit-related event, I'd be surprised if this causes a large rout also in the equity market." It can be an opportunity for some investors who want to withdraw money from the market, but I would be surprised if there was a real correction as a result of the bond volatility. STOCKS SKID The major European markets, Frankfurt, Paris, and London, all fell between 0.5% and 1.1%. Nikkei, the Japanese stock market, fell 1% overnight, after falling 2% from its record highs last week. South Korean stocks increased 0.3% as Samsung Electronics gained nearly 4% following a partial court injunction against a strike. MSCI's broadest Asia-Pacific share index outside Japan fell 0.7%. Chinese blue-chips lost 0.6% as disappointing economic data weighed on the market. Retail sales in China rose 0.2%, when analysts expected growth of 2.0%. Industrial output also increased a slow 4.1%. S&P futures dropped 0.4%, while Nasdaq futures declined 0.2%. AI, RETAIL EARNINGS TO TEST FOR THE BULL RUSH The rising yields increase borrowing costs, and a discount is applied to future earnings of the company. This can affect stock valuations. Earnings from Nvidia, the world's largest company, are due to be released on Wednesday. Expectations for this company are sky-high. Nvidia's shares have risen 36% from a low in March, and the Philadelphia SE Semiconductor Index has soared over 60% amid a voracious demand for semiconductors as tech companies invest massively to create AI-related infrastructure. This week, Walmart and a number of other retailers will also release their results. These will give us an idea about how consumers are coping with the high cost of energy. The greenback has been the most liquid currency in forex markets due to risk aversion. The U.S. also exports energy, which gives it a relative advantage over Europe and most of Asia. The euro remained unchanged at $1.1630, after losing 1.4% the previous week. The pound remained at $1.3353 after a 2.3% drop last week due to political unrest in Britain. The dollar held steady against the yen, at 158.91. Only the threat of Japanese interference prevented another speculative attack on the 160.00 chart. Gold was almost flat on commodity markets at $4,544 per ounce, after attracting little support as a safe-haven or a hedge against inflation risk. (Reporting and editing by Gus Trompiz, Sonali Desai and Wayne Cole)
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Environmental concerns are a challenge for Equinix to Cape Town data centers
The plan of U.S. listed Equinix, to build two data centres in Cape Town, should not be approved unless its full water, power, and environmental impact is fully disclosed, according to an official objection filed with 'city planners. Housing Assembly (HA), a South African social movement that represents more than 20 communities, and UK non profit Foxglove claim the application can't be approved without key information for officials to evaluate the project. Technology firms are racing to increase computing power around the world, but they're facing local opposition as communities worry about rising electricity bills, water stress and pollution. Rosa Curling said that there was not enough information to make a decision about a project this size. There were no details on water usage, emissions, electricity demands, diesel generators or noise. According to the document, this project includes two large data centers in Cape Town that will use a total of up to 160 megawatts of power. However, there are still questions about how backup power generation for the site is going to be handled. Curling stated that the water requirements of the site were also important, given Cape Town's history with water scarcity. Cape Town experienced a severe water shortage in 2017-2018. This is known as 'Day Zero Crisis', where the city shut down most household taps due to dangerously low reservoirs. Saadiyah kwada, an lawyer at Legal Resources Centre, a non-profit organization in Cape Town, said: "There is a rush to build data centres, without properly considering the impacts." Equinix, which according to their website operates a 100% renewable energy site in Johannesburg, declined to comment about the objections lodged by HA 'and Foxglove. King David Golf Club and Equinix, owners of King Air Industrial (the development site on which the data centers are to be built), have 30 days in which to respond. After that, 'the City' has 180 days in which to decide. KAI refused to comment. The City of Cape Town has not responded to any requests for comments. South Africa's Government pledged on Wednesday to increase investment in digital infrastructure including data centers through tax incentives, policy reforms and regulatory barriers. (Editing by Simon Jessop and Kirsten Donovan).
Copper falls to a one-week low due to weak China data
Copper prices dropped to a one-week low on Monday, as concerns about demand were exacerbated by the weak economic data coming out of China, the world's largest consumer.
Benchmark copper on the London Metal Exchange was down?0.7% to $13,465 per metric ton, from an earlier low of $13,394.5. It has fallen 5% from a three-and-a half month high of $14196.50, last week.
The traders said that the Chinese data had caused a further unwinding - a bet on higher prices held by funds and traders.
China's industrial output data in April rose by 4.1% from the previous year, compared to a 5.7% increase in March. This is below a polled forecast of 5.9% growth, and represents the slowest growth in China since July 2023.
Brent crude futures increased by more than 1%, to $110 per barrel. This was after an attack on a nuclear power plant in the United Arab Emirates and the apparent failure of U.S. - Israeli efforts to end their war against Iran.
Britannia Global Markets wrote in a report that "that fuelled further speculation" about the need for central banks to continue tightening their monetary policies. This could harm metals, as it would slow global growth and reduce demand from manufacturers.
Amid disruptions in Middle East production, aluminium is a major focus elsewhere. It accounts for about 9% of the global supply.
"Aluminium has a very clear deficit." Analysts at Marex estimated that the market would be "short" by about 1.5 million tonnes before the Middle East's latest disruption risk.
A Strait of Hormuz supply shock could cause a reduction of around 3 million tonnes of aluminium this year, pushing the shortfall in 2026 to approximately 3.3 million tonnes.
The fear of a shortage led to large premiums or backwardations for contracts that were close by compared with those with a longer maturity.
Prices of industrial metals were supported by a weaker dollar, which made metals more affordable for holders of other currencies.
Aluminium for three months was up by 0.4% to $3,576 per ton. Zinc rose by 0.2% to 3,543, while lead climbed to $1,979. Tin gained 0.7% to 52,700, and nickel increased 0.5% to 18,590.
(source: Reuters)