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Mike Dolan: The ROI-Transatlantic Rate Convergence may be a mirage
The interest rate differentials are telling a story right now, and it is a complex one. Transatlantic policy rate gaps are closing quickly, but if you look farther out, a different picture emerges. The euro/dollar rate is the pivotal currency pair in the world. It accounts for over $2 trillion of daily currency market turnover, and more than one fifth of all global flows. The U.S. premium on short rates over the euro zone may well disappear by the end of this year. This is likely to be a powerful headwind for the dollar. It may struggle to maintain the renewed safety flows that it has enjoyed in the last two months. The Federal Reserve and European Central Bank will likely hold their rates at the same level when they meet in this week. The Iran war, and the oil shock that accompanied it, have distorted inflation expectations and rate horizons both on the US and European sides. Fed policy rates are consistently higher than ECB counterparts, despite the pandemic when all major central bank cut their rates to near zero. This is largely due to superior U.S. equity market and growth performance. The ECB returned inflation quickly to its target after the pandemic and Ukraine. Since June last year, the ECB has been in a "happy place" with a 2% deposit rate and a real short-term rate of about zero. The Fed has continued to ease late last year, but since then it's been on hold. Inflation is still above the 2% target. This was first caused by tariffs, and now fuel prices have been a major factor in recent weeks. The Gulf conflict, and the subsequent oil market hiatus, has frozen both banks. The regional energy impact, and the inflation?and policy fallout--are very different. Money markets have priced at least two ECB interest rate increases this year. Many bets are hovering around 2.6% by the end of the year - which is coincidentally what March's euro zone inflation rate was. As the war and oil shock unfolded last month, that pricing reached 2.80%. Some forecasters expect a more aggressive ECB reaction than markets currently price. HAWKISH TILTS Citadel strategist Frank Flight cites the rise in consumer inflation expectations for the euro zone over the next year to 4% as proof that a hawkish shock is coming. He said that Hawks would "absolutely" push for an April rate increase based on the print. They have a good reason to do so. "I wouldn’t rule out an additional 50 basis points in June, if the rates remain unchanged this week. If the conflict continues." This week, the Fed's meeting will be the last one for Jerome Powell, who is the Fed's chair until May 15. The futures markets sees that there is less than 20% chance for another reduction in the Fed's mid-rate of 3.625%, at least over the next year. By the end of the year, the rate will be significantly lower - as the oil price shock subsides and President Donald Trump's new appointee Kevin Warsh takes over the chairmanship. Powell is also nearing the end?of his term on the board. It is possible that the policy rate will eventually converge to 3%. The two-year differentials in the yields of transatlantic government bonds tell part this story. They reached their tightest level in nearly five years at the beginning of this month. For the first time since four years, the actual two-year gap in rates fell below 50 basis points. When you look at 10-year maturity, the picture is a little different. The gap between nominal and real yields remains large. In fact, it's even wider when comparing inflation-adjusted yields. Since the start of the Iran War, there has been a rise in the 10-year real rate gap between Treasuries (US Treasury bonds) and eurozone debt. This is reflected in the euro zone's numbers this week, which show a sharply increased inflation expectation combined with tightening of bank credit. This reinforces stagflationary effects and leads to a slower rate of growth and higher rates of inflation in the long-term. On the other hand, the U.S. is expected to grow faster over a longer period of time, thanks in part to the booms in artificial intelligence and tech. This helps to explain why Wall Street stocks led by tech surged despite the energy crisis related to Iran. Goldman Sachs analysts note that profits anticipated more than 10 years in the future, often referred to as terminal value, now account for about 75% the S&P 500 equity value. This is near a record high. The more things change in the North Atlantic, the more they seem to remain the same. The opinions expressed are those of Mike Dolan a columnist at. This column is great! 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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Powell's remarks on Iran War impact are expected to be heard soon.
Investors waited for a U.S. report on gold. Federal Reserve Chair Jerome Powell's comments will be used to assess the economic impact of the Iran War as the peace talks stagnate. As of 0439 GMT spot gold rose 0.2% to $4,602.82 an ounce after dropping to its lowest level in April 2 the previous session. U.S. gold futures for June delivery rose 0.2% ?to $4,616.40. Investors anticipate that the Fed will hold interest rates at a steady level after its two-day session later in the day. The market's resilience has been built on the assumption that the Fed will step in to help if the situation worsens. Ilya SPivak, global macro head at 'Tastylive, said that if it sets a high bar, gold could extend lower. The efforts to end the Iran conflict are at a standstill. U.S. president Donald Trump is unhappy with the latest offer from Tehran. He said that Tehran had told the U.S. they were in a state of collapse and figuring out their leadership situation. Brent crude oil, meanwhile, remained above $100 a barrel despite reports that the U.S. would extend its "blockade" of Iranian ports. The likelihood of interest rates increasing is increased by higher crude oil prices. Gold is often seen as an?asset that can be used to hedge against inflation. However, the high interest rates have a negative impact on its appeal. Investors are also likely to be focusing their attention on the decisions of other central banks this week. These include those of the European Central Bank (ECB), the Bank of England and the Bank of Canada. Standard Chartered stated in a report that they expect gold prices to remain 'fragile' in the short term but to gain traction over the next few months and re-test previous highs as the structural drivers of the rally (geopolitical conflicts, tariffs, and uncertainty in trade) continue to hold. Silver spot rose by 1%, to $73.82 an ounce. Platinum fell 0.3%, to $1,933.75, while palladium dropped 0.2%, to $1,457.39. (Reporting and editing by Subhranshu, Rashmi, Harikrishnan Nair and Noel John from Bengaluru)
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MORNING BID EUROPE - Fed sails into uncharted waters as Powell bows away
Gregor Stuart Hunter gives us a look at what the future holds for European and global markets. Fed Day is upon us, and it looks more certain than ever that Jerome Powell will be the next chair. The Senate will vote on Kevin Warsh by the end of the Federal Open Market Committee, setting the stage for the most important period at the world's largest central bank. Fed funds futures indicate a 100% likelihood of a hold. No policy changes are expected before 2027. Warsh's ability to navigate the relationship between the FOMC and the White House is still in question, especially with the FOMC more divided than ever. Powell's legacy debate will probably 'focus' on his defense of the Fed's independent in the face of Trump's relentless pressure - the man who appointed him. Powell's future as Fed governor is not clear yet, either. His term as Fed chair ends officially on May 15th. The markets are cautious on Wednesday. S&P 500 futures rose 0.1%, while?MSCI’s broadest Asia-Pacific share index outside of Japan erased earlier losses and traded flat. The markets are being impacted by the Fed's uncertainty, a geopolitical standoff and the diplomatic impasse that Washington and Tehran have over the end of the war. The Wall Street Journal reported Tuesday, citing U.S. government officials, that Trump had instructed his aides in order to prepare for a prolonged blockade against Iran. Tech didn't offer much comfort either. The Journal reported that AI giant OpenAI missed its internal targets of weekly users and revenue. This raised concerns over whether ChatGPT's parent company could sustain the massive expenditure on data centres. Shares of Oracle and CoreWeave had been impacted by the report in Wall Street trading. Early European trades showed that pan-regional futures and German DAX were flat. FTSE Futures were down by 0.2%. M&A advisers might be suffering from a hangover after mixing too many spirits. Pernod Ricard & Brown-Forman have ended their merger talks after they failed to agree on terms. The following are key developments that may influence the markets on Wednesday. Earnings in Europe Deutsche Bank, Amundi , ?Mercedes-Benz , Norsk Hydro, AstraZeneca, GSK , TotalEnergies, Universal ?Music Group . U.S. earnings: Alphabet, Microsoft, Amazon.com, Meta, AbbVie, Qualcomm Economic Events Euro Zone: Money M3 Annual Growth in March, Business Climate and Consumer Confidence for April, Economic Sentiment Industrial Sentiment Services Sentiment Germany: CPI and HICP preliminary data for April Debt auctions Germany: 10-year bund auction
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Sinopec refinery usage drops but chemical exports increase due to the Iran war
Sinopec, a Chinese company, said that its refinery and petrochemical utilization rates fell in the first quarter due to the U.S./Israeli war on Iran which disrupted the feedstock supply. However its chemical exports will grow strongly this year. Sinopec is the world's largest refiner by capacity. The company announced that it had cut refinery utilisation by 7.6 percentages points annually between January and the end of March, to an average of around 83%. A company executive said that the ethylene usage rate was 89% for the first quarter of this year, which is 1.5 percentage points less than it was a year ago. The War on Iran that began on February 28 has resulted in weeks of near-full closing of the?Hormuz Strait. Through this strait about 20% of world oil and gas flow. This has disrupted crude oil and petrochemicals supplies to many Asian refiners. The conflict has also provided an opportunity for the giant refiner to increase its exports of chemical products. It expects that they will rise by 26%, to 3,65 million tons, in 2026. Sinopec, which has been working to restore refinery margins and cover a gap in crude oil supply, has sought government support for tapping into commercial oil reserves. The company has also obtained a full year government quota on refined fuel exports. In the first quarter of this year, it exported 4,32 million tons (including 3,82 million tons) of jet fuel. The war has boosted its Asian refining margins. China banned fuel exports to protect domestic fuel supplies in March. The restriction was then extended through April. The restriction did not apply to exports to Hong Kong or Macau, aviation fuel refuelling flights for international travel, and bunker sales by shippers for international voyages. Sinopec predicted that China's ethylene consumption would increase 2.7% by 2026. Sinopec’s first-quarter LNG import business suffered a loss of 830 million Yuan ($121.46) due to lower supplies under term contracts, and higher spot imports. Sinopec has a long-term contract with Qatar to buy LNG, but the war damaged Qatar's gas production facilities.
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Iron ore gains from China's plan to increase loan issuance
Iron ore prices rose on Wednesday, as the central bank of China announced a plan to expand its loan program. However, declining crude steel use and increasing ores supply were weighing on prices. As of 0239 GMT, the?most-traded contract for September iron ore on China's Dalian Commodity Exchange was 0.45% higher. It stood at 784 Yuan ($114.66), per metric ton. The benchmark June Iron Ore at the Singapore Exchange rose 0.3% to $106.1 per ton. Sources said that the?People's Bank of China asked banks to increase loan issuance in April and to ensure?the outstanding balances of loans show positive growth month-over-month to support the economy. Mysteel, a consultancy, said that restocking in anticipation of China's May Day holiday, which lasts for five days, and the steady demand for construction steel also helped to support ore prices. The state-backed China Iron and Steel Association told reporters that China's apparent crude steel consumption fell by 4.4% on an annual basis to 220 millions tons in the first quarter, underscoring the tepid market for the material. Four sources familiar with the matter confirmed on Tuesday that China's iron ore state buyer had lifted its ban on certain BHP ore products which were accumulating at ports. After submitting a report with China Mineral Resources Group?the sources said, speaking under condition of anonymity. The rising supply is weighing down on prices. Coking coal and?coke, which are used to make steel, also gained on the DCE. They rose by 0.51% and 0.49 respectively. The majority of steel benchmarks traded on the Shanghai Futures Exchange rose. Rebar rose 0.13%. Hot-rolled coil traders were up 0.21%. Stainless steel was up 0.42%. Wire rod fell 2.36%. ($1 = 6.8375 yuan) (Reporting by Ruth Chai; Editing by Subhranshu Sahu)
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Powell's remarks on Iran War impact are expected to be heard soon.
Gold prices were largely stable despite choppy trading on Wednesday, as investors awaited the comments of U.S. Federal Reserve chair?Jerome Powell to assess the economic impact of the Iran War in the face stalled talks. As of 0243 GMT spot gold rose 0.1% to $4,597.07 an ounce after dropping to its lowest level in April 2 the previous session. U.S. Gold Futures for June Delivery were stable?at $4610.20. As markets anticipate the FOMC meeting, gold remained stable. Much of the market's resilience following last April's tariff panic was built on the assumption the Fed would be ready to intervene if conditions worsened. Ilya SPivak, the head of global macro for Tastylive, said that if it sets a high bar, gold could continue to fall. Investors anticipate that the Fed will hold interest rates at the same level?after its two-day meeting later that day. The efforts to end the Iran conflict are at a standstill. U.S. president Donald Trump is unhappy with the latest Iranian proposal, saying that Tehran had told the U.S. they were in a state of collapse and were figuring out their leadership situation. Brent crude oil remains above $110 per barrel, despite reports that the U.S. is extending its blockade against Iranian ports. The likelihood of interest rates rising is increased by higher crude oil prices. Gold is often seen as an inflation hedge, but high interest rates make it less attractive. Investors are also focusing their attention on the central bank decisions of the European Central Bank (ECB),?the Bank of England and the Bank of Canada this week. Standard Chartered stated in a report that they expect 'gold's price to be fragile over the short term. However, prices will continue to gain traction and retest records in the months to come as long as the underlying structural drivers (geopolitical concerns, tariffs and trade uncertainty) remain unchanged. Silver spot rose by 0.8%, to $73.64 an ounce. Platinum fell by 0.4%, to $1,930. Palladium dropped 0.4%, to $1,453.91. (Reporting and editing by Subhranshu sahu, Rashmi aich, and Noel John from Bengaluru)
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Huayou, a Chinese company, has cut production at an Indonesian nickel factory as sulphur prices rise
Zhejiang Huayou Cobalt announced on Tuesday that the?Indonesian?unit will temporarily stop some production lines starting May?1, cutting about half of the plant's?output. This is after rising sulphur costs increased costs at one its key battery nickel projects. In a press release, the Chinese nickel and copper maker stated that production at the Huafei Nickel Cobalt facility would be cut due to higher sulphur prices as well as the maintenance needed after a period of high-capacity production. The company did not specify how long the interruption would last. The spot price of sulphur for Indonesia has risen to $800 per metric ton as the Iran War disrupted the production and shipping. About a quarter (25%) of the global sulphur is produced in this region, and 75% of Indonesia's supply comes from it. Reports on April 14 stated that Huayou Resources, Lygend Resources, and Tsingshan group Indonesian HPAL producers had reduced output by at least 10% as a result of rising sulphur costs since March. The Huafei outage is one of the most clear signs at the company level that the HPAL nickel sector in Indonesia, which uses high-pressure acid-leach (HPAL), is being hit by a global sulphur crunch. HPAL plants process laterite ore using sulphuric acids to produce mixed hydroxide precipitate, a product intermediate used in electric vehicle battery production. Huayou stated that it would "accelerate" the?process upgrades in order to reduce sulphuric acids consumption and expand sulphur supplies. Huayou said that it would also accelerate the development of nickel, cobalt, and lithium mining resources acquired through equity stakes and investment. Huafei will generate 14.50 billion yuan (2.12 billion dollars) in revenue by 2025. This is 17.89% Huayou’s total revenue. Huayou's unit made a net profit of 1.25 billion yuan. Huayou received a share of attributable profits from the unit worth 569 million yuan or 9.32%.
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As Fed meeting approaches, stocks retreat due to concerns about Iran and AI
The markets started off with a mixed start on Wednesday, as concerns?about the Iran Conflict and the health of the AI Sector dominated the trading session ahead of the Federal Reserve decision and earnings of?tech Megacap Stocks later in the day. MSCI's broadest index of Asia-Pacific stocks outside Japan fell 0.2% for a second consecutive day, slipping from the record highs reached on Monday. This was primarily due to declines in Taiwanese chipset makers. Japanese markets were closed on a holiday. Brent crude rose by 0.4% to $111.71 a barrel, as the efforts to end Iran's conflict have hit a deadlock. Analysts from Westpac stated in a research report that "markets remained cautious over night as peace talks continued stalling, with Iran demanding the lifting of U.S. Naval Blockade of Strait of Hormuz. Mediators expect a revised Iranian offer in the coming days." U.S. president Donald Trump is not happy with the latest Iranian proposal, as he wants the nuclear issue dealt with from the start. The Wall Street Journal reported Tuesday, citing U.S. government officials, that Trump had instructed his aides to get ready for an extended Iranian blockade. The S&P 500 fell 0.5% on Tuesday and the Nasdaq Composite dropped 0.9%, as investors assessed Iran's impasse. The tech shares took a dive after the?Journal revealed that AI giant OpenAI missed its internal targets in terms of weekly users and revenue. This raised concerns about the parent company ChatGPT's ability to fund?its massive expenditure on data centers. This report affected the shares of Oracle, CoreWeave and others. The AI-driven rally will be further tested by the earnings of U.S. tech titans Microsoft, Alphabet, Amazon, and Meta Platforms due on Wednesday. The US corporate sector has shown a remarkable resilience to the conflict in Iran. With slightly more than a third of S&P sectors reporting profits already, 81% have exceeded estimates. The market will focus on the Federal Reserve meeting of April, which is Jerome Powell's final meeting as Fed chairman. Traders think a hold will happen. Fed?funds Futures price an implied 100% chance that the U.S. Central Bank will remain steadfast, with no changes in policy expected until the end of 2027. Analysts from ING wrote that it wouldn't be expensive for the Fed to adopt a hawkish stance, while still remaining in a waiting-and-seeing mode. There will be questions about the future of Powell and Kevin Warsh. The yield on the 10-year Treasury bond in the United States was up 0.6 basis points at 4.346%. Meanwhile, the U.S. Dollar Index, which measures the strength of the greenback against a basket six currencies, rose 0.1% to 98.67 for the second day running. The markets also digested United Arab Emirates' surprise departure from OPEC. However, it is expected that the rest will stick together. Chris Weston is the head of research for Pepperstone Group Ltd. in Melbourne. Brent futures for the first month of the year quickly recovered the initial loss. Gold fell 0.3% to $4,581.40. Bitcoin was unchanged at $76,471.21, while ether fell 0.3% to $2,289.16. (Reporting and editing by Jacqueline Wong; Reporting by Gregor Stuart Hunter)
India's gold demand tops jewellery in the March quarter for the first time.
India's gold investment demand surpassed jewellery consumption for the first quarter in history, according to the World Gold Council. Investors turned to the precious metal due to a subdued equity market.
The WGC reported that a rise in gold prices had led to a drop in jewellery sales in the second largest consumer of the metal. This helped keep the overall demand steady.
Sachin Jain is the chief executive officer of WGC's Indian operations. He said that for the first time, investment demand has surpassed jewellery.
Investors will be more interested in gold, both retail and financial.
The World Gold Council (WGC), in a report released on Wednesday, said that investment demand in the quarter of March rose?52% compared to the same period a year ago, to 82 tons. Meanwhile, jewellery demand dropped 19.5% to 66 tons. The data shows that total gold consumption in the nation increased 10.2% during the third quarter to 151 tons.
The investment demand has now accounted for more than half of the total consumption, reaching 54.3%.
Investors are now buying gold bars, coins and exchange-traded fund (ETF)s due to rising prices. WGC reported that inflows to gold ETFs increased 186% from a year ago, reaching a record of 20 tons. Jain said that investors have been drawn to gold ETFs by the weak stock market performance of recent quarters. This trend is likely to continue. Since the beginning of 2025 the domestic gold price has nearly doubled, and India's benchmark index Nifty 50 is up 2.4%. (Reporting and editing by Rashmi aich; Reporting by Rajendra jadhav)
(source: Reuters)