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ROI-Iran war exposes 60-40 portfolio frailty: McGeever
Investors are left with an uncomfortable question: How can they hedge their risks when the traditional equity and bond portfolio is no longer working? Investors are under increasing pressure to find a solution, and the answer may not be obvious. However, the volatility of the world markets following the U.S./Israeli attack on Iran last weekend indicates that this will only intensify. As bonds fell across the curve, the implied volatility of U.S. Treasuries rose the most on Monday since April. Implied - U.S. Equity market volatility on Tuesday was the highest since October as stocks all over the world fell. Investors have historically used Treasuries to protect themselves against economic, geopolitical and financial risks. They also use gold, which is considered the safest, most liquid asset. Bonds have historically been expected to increase in value during periods of low risk, which would reduce the volatility of equities. This led to the adoption of the traditional allocation to portfolios: 60% stocks and 40% bonds. Since the COVID-19 outbreak, the US's rising fiscal deficit, public debt and inflation have slowly but steadily undermined the status of Treasuries as the "natural hedge" against equity risks. The safety mechanisms built into the 60/40 Portfolio have been eroded as a result. The authors of an International Monetary Fund (IMF) blog published a report last month that noted how bonds and stocks often move together, particularly during market declines. Investors from all backgrounds, including conservative institutions such as pension funds and insurance companies, are exposed to higher volatility and greater losses. This, of course increases the financial stability risk for policymakers. If diversification fails, it can lead to a cascade of financial instability. "Investors and policymakers need to rethink their risk management in a new world where traditional hedges are no longer effective," they stated. DIFFERENTIATION IN CORRELATION What are the alternative strategies for hedging or diversification that IMF suggests? Blog post highlighted the use of private assets to protect portfolios from market panic, as they are often less volatile than publicly traded assets. Recent events in the?private credit market show that opaque private markets come with their own risks. Post also suggested commodities be taken into consideration. Gold and precious metals have disappointed those who believe that hard assets are the best way to hedge political risk. Bullion, a traditional "safe-haven asset" and hedge against inflation that has been around for centuries, only rose 1% on Sunday and fell 2% on Tuesday. Platinum and silver prices have fallen by 10% since Monday's opening of trading. The precious metals market is driven by short-term flows as well as economic fundamentals. Other commodities, with the notable exceptions of oil and natural gas, are also being sold, such as corn, wheat, and copper. These are certainly short-term moves, but if these don't reverse one wonders what the options are for diversification and hedging. Not Dead Yet Before the Iran strike, Treasuries seemed to be regaining a sense of diversification. Truist Advisory Services reports that the daily correlation between stocks, bonds and the stock market turned negative in the first two month of this year. It was also approaching the average levels seen during the pre-pandemic decade. Was it a temporary anomaly? Keith Lerner is the chief investment officer of?Truist. Lerner says that while the current rise in oil prices may make Treasuries look less attractive due to the possibility of inflation and tighter monetary policies, a prolonged period of high energy costs will become a recession threat. In this case, bonds become attractive once again. Lerner stated that "our view of high-quality bonds as a good portfolio diversifier in general has not changed." Risk-management strategies and diversification methods are often thrown out the window when political factors drive market sentiment and prices rather than economic fundamentals. Investors who are experts in understanding the economy and markets, do not always have the best ability to predict how long a war will last. Bob Elliott, CIO and CEO of Unlimited, said: "It doesn't matter if this conflict lasts a long time or not. It is a lesson to diversify your portfolio to achieve a wider range outcomes." Investors face a difficult challenge. 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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Aluminum prices rise as Middle East conflict fuels concerns about supply
Aluminum prices rose Tuesday, as traders were 'alert' to the supply risks in the Middle East due to the U.S.-Israeli air war on Iran that spilled over into neighboring countries. Benchmark Aluminium on the London Metal Exchange rose 2.1% to $3,260 per metric tonne in open-outcry official trading, after reaching a month-high of $3,315. Middle East exports aluminium via the Strait of Hormuz, which accounts for 8 percent of global capacity. Iran threatened to attack any ship that tried to cross the Strait on Monday. Aluminium producers have halted premium offers for Japanese buyers in the second quarter. Norsk Hydro wanted more information when QatarEnergy announced that it was stopping the production of certain downstream products, including aluminum in Qatar. QatarEnergy provides gas to Qatalum - a joint venture between Norsk Hydro and a local company. Spread between the LME cash aluminum contract and the benchmark indicates concern about the availability of metal in the near future. In Tuesday's volatile session, the price was?zero compared with?the last week's $12 discount per ton. Daily LME data revealed that the available aluminium stocks at LME registered warehouses dropped to 375.525 tonnes, their lowest level since September. This was after new cancellations of 45.325 tons in Malaysia's Port Klang. Official activity saw copper drop 1.9% to $12.864 after it hit $12.722, its lowest level since February 19. The U.S. Dollar extended gains with the spike in oil prices and the lack of an end to hostilities. Stocks and government bonds were further eroded, while precious metals fell sharply. Ben Davis, RBC Capital Markets' head of European metals research and mining, said: "It is a whole new world." It was surprising to see the lack of reaction yesterday. But markets are catching up now. Other LME metals fell 7.7%, to $48,550, with signs that?Myanmar’s Wa region is taking steps toward a gradual restart of mining activities. Nickel fell 0.2% to $17,120. Indonesia Nickel Miners Association?said that the government has allocated a quota for nickel ore production of 260 millions?tons by 2026. It added that there will be an option to suggest revisions on the quota. Zinc dropped 0.5% to $3300, after reaching a one-month low at $3248, while lead fell by 0.8% to $1945.5. (Reporting and editing by Louise Heavens; Polina Devtt)
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Analysts say that oil shock could affect emerging markets in ways beyond inflation.
Analysts warn that the war in Iran, and the surge?in energy costs it will cause, will have a significant impact on emerging markets. This includes pressures on currency, capital flows and external balances. Brokerages such as J.P.Morgan, and?Bernstein expect Brent prices will rise 'above a $100 mark if conflict continues. Tehran has vowed that it would close the Strait of Hormuz, and warned any ship attempting to pass through the vital shipping route for gas and oil. Brent crude futures rose $5.63 or 7.2% to $83.36 per barrel at 1254 GMT, after reaching their highest level since July 2024, $85.12. A mere 10% increase in oil prices could erode?current accounts (for emerging markets), by 40-60 basis point. "Prolonged increases will only increase these deficits," analysts from ING?said. They added that Thailand, South Korea, Vietnam, Taiwan, and the Philippines are most vulnerable. The U.S.-Israeli airwar against Iran has widened. Israel attacked Lebanon, and Iran responded?with attacks against energy infrastructure and tankers in the Strait of Hormuz and Gulf countries. The conflict has shaken the global financial markets. Both the emerging market equity and currency indexes have fallen to their lowest levels in three weeks as investors seek the safety of the U.S. Dollar. Analysts said that higher crude oil prices are only a small risk for China, unless they escalate or last a long time. India's thin oil reserves would make it one of the most vulnerable to a disruption in supply. Goldman Sachs estimates that an increase in Brent crude prices from $70 up to $85 will 'add about 0.7 percentage points to inflation in emerging Asia, and slash the economic growth by around 0.5 points, and widen current account deficits in almost every economy in the area, especially Thailand, Singapore, and South Korea. Citigroup warned that a prolonged shock to oil prices could "aggressively" de-anchor inflation expectations in emerging markets. Countries with low reserves, such as Argentina and?Sri Lanka face a heightened risk of capital outflows, and their currencies may fall. Separately, J.P. Morgan analysts added the Polish zloty currency to their list as "underweight". (Reporting from Rashika and Kanchana in Bengalur; additional reporting by Akriti; editing by Devika Syamnath).
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Rare Earths Norway reports that the estimate of Europe's largest deposit has risen by 81%
Rare Earths Norway announced on Tuesday that the estimate of mineral resources in a mine under development by Europe's largest project for rare earths has increased by 81% from?the previous evaluation two years ago. The development of Fen in southern Norway, the company's rare earth project, would help the continent to reduce its dependence on the dominant producer China. According to a WSP statement, the project contains 15.9 million metric tonnes of total rare earth oxide in indicated and implied resources. It added that the new estimate is based on additional exploration drilling done last year, and compares to 8,8 million tons calculated for 2024. SEEMED AS A STRATEGIC ASSET By nearly doubling the size of its known deposit, Rare Earths Norway is now a "world-class strategic asset," according to Bernd?Schaefer CEO of EIT RawMaterials. This EU-funded agency works with critical minerals. The deposit is larger than Per Geijer, Sweden. According to LKAB mining company in 2023, Per Geijer was the largest deposit in Europe. It contained 1.3 million tonnes of rare earth oxides. The estimate was updated to 2.2 millions tons last year. According to the company, the latest estimate of the Rare Earths project in Norway shows that 19% are neodymium oxides and praseodymium oxides (NdPr), which are key minerals for permanent magnets needed for electric vehicles, wind turbines, electronics, and defence applications. Alf Reistad, CEO of Alf Reistad, said that the company expects to begin production in late 2030, and produce 800 tons of NdPr before 2032. This would be enough to meet 5% of EU demand for these minerals. The company already has a permit for extraction but needs a?permit to operate. Reistad stated that the project is?still in permitting and?would require some "derisking" procedures to be able compete with the lower-priced output from China which accounts for around 90% of the global processed rare Earths. (Reporting and editing by Jan Harvey, Susan Fenton, and Eric Onstad)
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Middle East worries weigh on regional markets, but energy stocks are a cheer for Saudi Arabia
The majority of Gulf stock exchanges ended lower on Tuesday. Qatar's benchmark index continued to decline as the country suspended liquefied gas production in response to an escalating air war in the area, while Egypt?lost for a third consecutive day. Israel expanded its campaign by launching 'new' strikes on Iran and Hezbollah. Meanwhile, Iran launched missiles and drones towards Israel, several Gulf States and a British base in Cyprus. QatarEnergy's, a state-owned company in Qatar, whose 82% clients reside in Asia, had planned to declare force majeure for its LNG shipments following Iranian drone attacks against facilities at the vast Ras Laffan Complex. Qatar National Bank, the largest lender in the Gulf, saw its share price fall 1.9%, which weighed on the benchmark index. Qatar Fuel and Industries Qatar, both petrochemical firms, were among the gainers. Qatari exchange is still dominated by a risk-off mood, but losses have 'easened' compared to the earlier sharper drops. George Pavel, General Manager of Naga.com Middle East, stated that any rebound will depend on the evolution of regional tensions and whether disruptions in Qatar continue. Qatar condemned Iranian attacks on its land and stated, in a Monday letter to the U.N. secretary-general and president of the Security Council, that it reserves the right to retaliate. The Kuwaiti index recovered from early losses and finished 0.9% higher. Gulf Cooperation Council sovereign wealth funds could play a key role in supporting the local equity market by increasing liquidity and providing additional capital for a stronger investor sentiment. Samer Hasn is a senior analyst at XS.com and believes that this is the perfect time to channel support through fund of funds structures. Oil prices rose on Tuesday for the third consecutive day as fears of supply disruptions were heightened by threats against shipping through Strait of Hormuz. Iranian media reported that Iran's Revolutionary Guards chief said that the Strait of Hormuz was closed on Monday and that Iran would burn any ship that tried to pass. Saudi Arabia's benchmark stock index rose by 0.7%. Rajhi Bank, which owns 70% of the company, saw a 0.9% increase, and Saudi Aramco gained 1.9%. Petrochemical producer Saudi Basic Industries Corp also gained 4.2%. The Saudi energy index rose 1.8%. Saudi budget airline flynas, which is a stock that trades on the Saudi Stock Exchange, extended its declines for a third day, dropping 2.8% as air travel in the region took a hit. Hasn says that the Saudi market has shown surprising resilience in spite of the rapid and sudden expansion of war which is affecting the essential infrastructure sectors throughout the GCC. Investors are betting on the hope that the conflict won't last, and the expectation of Saudi government support in the affected sectors. In other news, the index in?Bahrain fell 0.3%. The UAE Securities and Commodities Authority announced that the Abu Dhabi Securities Exchange and Dubai Financial Market will remain closed on February 2, citing their supervisory and regulating mandate over the country's capital market. The markets were also closed on March 2. Egypt's blue chip index, outside the Gulf, extended its losses?to a second consecutive session, and fell 2%. Most stocks declined. The market correction has been exacerbated by the regional instabilities. Pavel said that the risks of foreign direct investments, Suez Canal revenue, tourism and gas supplies continue to weigh on sentiment. Ateeq Sharif and Md. Manzer Hussain report from Bengaluru. Sumana Nandy and Kirsten Donovan edit the story. Harikrishnan Nair, Chizu Nomiyama and Sumana Nandy are responsible for editing.
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As gas prices rise, Grupa Azoty in Poland suspends all new orders for nitrogen fertilizers
The 'Polish chemical group' said that it has stopped accepting new orders for nitrogen fertilizers due to the rising gas prices in the Middle East. Groupa Azoty reported that non-European producers from Egypt, Algeria and China, as well as the United States, immediately increased fertilizer prices by between $45-70 a metric ton, in response?to the cost increase. The company also said that producers?in the region as well as importers from a third country have suspended or withdrawn offers. * 'Grupa Azoty denies halting production. It says that its plants are operating at maximum capacity, and all orders placed prior to the suspension announcement have been fulfilled. * The company claimed that it didn't pass on the higher costs to partners and that accepting orders with the current prices would expose the company to negative consequences. * The 'group added that there was no risk of domestic market supply as existing 'orders are being filled and their authorised distribution network holds stocked warehouses. The company stated that orders for multi-component fertilisers?haven't been suspended? because?gas costs are a smaller percentage of their production costs. (Reporting from Rafal Nowak, Gdansk. Editing by Matt Scuffham.)
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MORNING BID AMERICAS-Hormuz haze hits markets
By Mike Dolan March 3rd - Mike Dolan is Editor-at-Large for Finance and Markets. The world's markets continue to be rattled by the Middle East conflict, which is now in its third day. There are still no signs of an end date or location for the regional conflict. Energy prices are still at the center of financial transmission. Crude oil is rising again as?shipping and oil and gas installations, military and civilian targets, and oil and gasoline pipelines continue to be hit by Iran in retaliation for the weekend strikes. Below, I'll go into more detail. Check out my most recent column about what's driving the recent dollar rally. 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. HORMUZ HAZEL HITS THE MARKETS Brent oil hit a 14 month high, and at $82.37 a barrel, is $10 more than Friday's closing price. U.S. crude oil hit an 8-month high at $75.55 a barrel. However, markets are waiting for a government announcement scheduled on Tuesday about plans to mitigate the impact of this on U.S. consumer. Details are not clear, but they could include the release of U.S. Strategic Petroleum Reserves or domestic subsidies. Wall Street stocks rebounded on Monday, with the S&P 500 returning to its opening levels. The tech sector led the way. But that felt like programmatic trading based on 'buy-the-dip' models based on the relatively brief energy price spikes experienced in recent Middle East conflict. This one is very different. Wall Street index futures have fallen?almost 2 percent. Today, stocks in Europe and Asia fell sharply. Japan's Nikkei index, the eurozone Stoxx and Britain's FTSE 100 each fell about 3%. South Korea's high flying?Kospi plunged 7% after Seoul returned from its holiday on 'Monday. The 10-year Treasury bond yield is up 13 basis points since Friday's closing. The markets are not expecting a Federal Reserve rate reduction until September. There are also doubts that there will be another this year, with only 42bps of cut priced in by the end of December. The traders are also busy pricing in any future rate cuts by the European Central Bank. The report released on Monday showed that U.S. manufacturers had already seen a spike in input costs in February, to the highest levels since 2022. This was even before the latest oil price surge. ECB watchers also digested a higher than expected flash inflation reading in the eurozone last month. The dollar is still favored by default in calculations of relative energy impacts, while the euro has fallen to its lowest level in six weeks due to 'worrying price increases for natural gas in the EU. The benchmark price of natural gas in the region hit its highest level in three years on February 2nd - an increase of?30% over the previous year. The Bank of Tokyo?warned about possible interventions to arrest the yen's weakness. Meanwhile, the Swiss National Bank stated that it would be more willing to interfere to counteract the rise of the safe-haven currency franc. The subsequent fallback of the franc coincided with a strange retreat in gold. Chart of the day Qatar, as the Middle East conflict gripped all of the region this week and condemned Iranian attacks on their territory, said that it "reserved a right to respond". Qatar, the third largest exporter of natural gas liquefied in the world, has seen its natural gas prices rise this week due to attacks on its energy infrastructure. On Tuesday, European benchmarks for natural gas reached their highest level in three years. Watch today's events * Neel Kahkari, Neel Williams and Jeffrey Schmid of the Kansas Fed all speak * U.S. Corporate earnings: Best Buy Target CrowdStrike Want to receive Morning Bid every morning in your email? Subscribe to the newsletter by clicking here. Follow us on LinkedIn, X and ROI. The opinions expressed here are the author's. These opinions do not represent the views of News. News is a non-partisan organization that adheres to the Trust Principles and values integrity, independence, freedom from bias, and impartiality.
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Fresnillo's shares drop as metals weaken and dividends miss expectations
Fresnillo, a precious?metals mining company, reported a?81%?surge in its annual profit on Tuesday. However, the shares of this company fell by as much as 5% due to a drop in metal prices. The London-listed firm is benefiting by the global political 'uncertainty' that fuels investment in safe haven assets such as gold. It also continues to?extend its North American presence. Fresnillo is the world's biggest primary silver producer. It reported that its earnings for 2025 before interest, taxes, depreciation and amortization increased to $2.80billion, driven by higher metals prices. It paid out $950 million, or 63% of adjusted profits, in 2025. This was above its customary 50% payout rate. However, the share price fell by as much as 5.4% due to falling gold and silver. Kieron H. Hodgson, Peel Hunt analyst, commented on the recent share movement. "While precious metals prices are lower, unrealistic expectations of an even higher dividend rate than the policy rate announced will add to a feeling of disappointment." High-Price Environment The escalating conflict between Israel and Palestine is pushing investors to safer assets. Fresnillo stated that it expected?the high prices for silver and gold will persist and that tariffs would continue to be a major issue?for international trade. The miner stated that the gold production exceeded expectations and was in line with its forecast. The miner also reiterated their 2026 forecasts for silver and gold production.
The U.S. Treasury requests a 90-day suspension of sanctions from Serbian oil company NIS
The Serbian energy ministry announced on Tuesday that the Serbian oil company NIS - which is owned by Russia's Gazprom and Gazprom - has requested a waiver from sanctions for 90 day.
The ministry stated that both the Serbian government and the Hungarian government have backed the NIS request.
The statement stated that "we urgently request that OFAC consider immediate assistance in the form of suspension of sanctions for at least 90 days while a viable solution leading to the lifting of the sanctions is considered."
The request of NIS is to obtain licenses to allow the company to continue to operate while it searches for a solution regarding ownership and management.
The ministry stated that "the (Serbian government)... supports this request... because sanctions will impair the ability of the company to supply oil and oil derivatives to Serbian citizens."
Gazprom and Gazprom own 50% and 6.15 % respectively of the company that operates the only oil refinery in Serbia.
The Serbian Government holds another 29,87%, with small shareholders making up the rest.
On January 10, Serbian President Aleksandar Vucic stated that Russian companies had 45 days or 45 days in which to sell their NIS ownership and any deal must be approved by OFAC.
Sergei Lavrov, the Russian Minister of Foreign Affairs, said on Jan. 14 that Moscow and Belgrade were in contact about NIS.
Serbia imports most of its crude through Croatian pipeline operator Janaf.
NIS, which is one of Serbia's largest contributors to the state budget, signed a contract for the transportation of 10 million tonnes of oil via Croatia between Jan. 1, 2024 and Dec. 31, 2026. (Reporting and writing by Aleksandar Vaovic; Editing and proofreading by Susan Fenton).
(source: Reuters)