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MORNING BID EUROPE - Trade deal hopes spurs risk rally
Ankur Banerjee gives us a look at what the future holds for European and global markets Even the mere possibility of a U.S. - China trade deal, which is more of a truce extension than a real agreement, was enough to send stock prices to new highs. It also pushed up gold and other commodities such as copper in anticipation of an exciting week. First, let's be clear: there is still no deal. It may only be a concept. This is what sparked the risk-on rally in Europe on Monday. U.S. officials and Chinese officials hammered out the framework for a trade agreement that U.S. president Donald Trump and Chinese president Xi Jinping will decide upon later this week, when they meet in South Korea. A deal could stop the steep U.S. duties on Chinese products as well as Chinese export controls for rare earths, which would calm investor nerves. The U.S. has made a lot of positive noises, while the Chinese have been more circumspect. The stock market has soared, however, as benchmark indices from Japan, Taiwan, and South Korea have all set records, after each gaining 2%. Chinese stocks rose by 0.86%, while Nasdaq Futures grew 1%. Many of the things that have been said so far are within the market's expectations. It could be disappointing if a "deal" is just a way to push the can further down the road. Investor enthusiasm will likely keep stocks high ahead of the central bank meetings taking place in Japan, Canada and Europe. It is likely that the U.S. Federal Reserve's policy interest rate will be lowered by 25 basis points. Focus will shift immediately to the next step, given that the U.S. shutdown and lack of economic data are a concern. Investors will pay more attention to the earnings week that is busiest this year. The near-term outlook will be shaped by mega-cap earnings. Market developments on Monday that may have a significant impact The Ifo German Business Sentiment data for October
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Bessent hints at possible Trump-Xi talks optimism
Chicago soybean futures reached their highest level since more than two month on Monday as renewed optimism about Chinese purchases lifted sentiment. Treasury Secretary Scott Bessent had said that the two countries' leaders could discuss a "substantial deal" in soybeans during a potential meeting. The most active soybean contract at the Chicago Board of Trade climbed by 1.42% to $10.56-1/2 a bushel as of 0124 GMT. This was their highest level since 25th August. The markets are watching closely a much-anticipated meeting between Trump & Xi this week in South Korea. Washington has maintained its optimism about a possible soybean deal with Beijing. China has not confirmed the meeting yet. U.S. Treasury Sec. Scott Bessent stated on Sunday that China is likely to resume substantial purchases of U.S. soya beans for several years. China may also delay the expansion of its licensing regime for rare Earths by one year, and then re-examine this after two days of talks with Malaysia. Bessent, on ABC's "This Week," said that when Trump and Xi announced a trade agreement next Thursday, U.S. soy farmers "will feel extremely good about what is going on for both this season and for the coming seasons for many years." Ole Houe is the director of advisory services for IKON Commodities, Sydney. "There's still a way to go until we see the boats arrive in China, and there are many things that can happen," he added. Analysts say a major soybean agreement could help U.S. Farmers avoid further losses. However, China's window of import is closing as buyers continue to purchase cargoes from South America. Wheat and corn also followed soybeans upwards. Wheat gained 1.9% and corn added 1.42%, respectively. Houe said that the excitement is unlikely to last more than two days for corn and wheat, because supplies are plentiful.
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Copper jumps 16 months high on optimism about trade deals
The copper price rose to a 16 month high on Monday as optimism grew over a possible U.S. China trade agreement. This was after the two world's largest economies outlined their framework for negotiation ahead of the leaders' meetings. As of 0330 GMT, the most traded copper contract on Shanghai Futures Exchange increased 1.78%, trading at 88.420 yuan (12,413.31) per ton. The yuan-per-ton price hit 88.620 earlier in the day, resetting a 16 month high. The benchmark copper for three months on the London Metal Exchange increased 0.94% to $10,065.50 per ton after reaching a 16-month-high of $11,076.50 per ton earlier in session. On Sunday, Chinese and American negotiators reached an agreement on a framework for a new trade agreement. On Thursday, Donald Trump, the U.S. president and Xi Jinping, the Chinese president will meet in South Korea. U.S. Treasury secretary Scott Bessent stated that the framework would halt steep American tariffs against Chinese goods. He also said he expected Beijing to delay by a full year its control of rare-earth imports and resume purchases of U.S. soya beans. Li Chenggang, China's top trade negotiator, confirmed to reporters the "preliminary agreement". After the announcement of the framework, most other base metals gained as well. Other base metals in the SHFE rose by 0.24%. Zinc, nickel, and tin all increased. Lead, however, fell by 0.29%. Aluminium gained 0.73% among other LME metals. Zinc rose 0.45%. Nickel ticked upward by 0.06%. Tin was up 0.27%. Lead was unchanged. Data/Events (GMT 0900 Germany Ifo Business Conditions New October 0900 Germany Ifo Expectations for New Oct 1100 France Unmp Class-A SA September 1230 US Durable goods Sep ($1 = 7.1230 Chinese Yuan Renminbi). (Reporting and Editing by Harikrishnan Nair; Reporting by Dylan Duan, Lewis Jackson)
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Japan to create panel similar to US Foreign Investment Panel for review of national security risks
The new Japanese government under Prime Minister Sanae Takaichi is looking at creating its own version the U.S. Committee that reviews foreign acquisitions for national security. Takaichi is a conservative hardliner who wants to strengthen such screenings. The ruling coalition aims to pass the necessary legislation for a such panel during next year's regular session of parliament. A source familiar with current thinking believes that the panel will include members from ministries and agencies engaged in screening investments to improve their coordination. Takaichi, who was running for the leadership of the ruling party last month, said that she "knew with certainty" that some ministries were well-versed in economic security and national defence, while others weren't. She said, "That's the reason I think we need to create a Japanese CFIUS version for security clearance." Takaichi also instructed Satsuki Katayama, the new Finance Minister last week, to look at ways to improve the Foreign Exchange and Foreign Trade Act's (FEFTA) screening framework for foreign investments. "We are currently looking at ways to strengthen and improve the screening framework. Katayama told and other media that this is an important and weighty matter. She refused to provide any further comment on the new framework, or the Japanese version CFIUS. These steps are in line with the scheduled review of FEFTA. In 2020, it underwent a major overhaul that reduced the threshold for a prior review of shares purchases from 10% to 1%. The revised law also includes a provision that calls for a review of the law five years after it is implemented. The potential impact of these changes on the review process for foreign acquisitions is unclear. Japan has only rejected one FEFTA deal to date - a 2008 attempt by London's Children's Investment Fund of Electric Power Development to acquire the company. There are some cases in which plans were withdrawn by the reviewers. Japan received 1638 notifications of stock purchases in the past financial year, but 363 were withdrawn. Yoshihisa Kainuma, the CEO of Minebea Mitsumi, expressed his concern about the unclear criteria for screening when it launched a bid to buy out Shibaura Electronics in response to an unsolicited offer by Taiwanese company Yageo. Yageo was able to secure the deal for $740 million after receiving security clearance. This was the first unsolicited buyout by a foreign company of a major Japanese company. (Reporting and editing by Muralikumar Aantharaman; Makiko Yamazaki)
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Gold drops on stronger dollar and US-China trade hopes
Gold prices fell Monday as investors awaited the outcome of major central bank meetings later this week to get a sense of monetary policy. As of 0158 GMT, spot gold was down by 0.7%, at $4,082.77 an ounce. U.S. Gold Futures for December Delivery fell 1% to $4095.80. The U.S. Dollar rose to its highest level in more than two weeks against the Japanese yen. This made gold more expensive for holders of other currencies. On Sunday, the top Chinese and U.S. economists hammered out the framework for a trade agreement that U.S. president Donald Trump and Chinese president Xi Jinping will decide on this week. This potential trade agreement between the U.S.and China came as a complete surprise and was a positive for the markets in general. The developments are also negative for gold, according to Capital.com analyst Kyle Rodda. The market is now calmer and the sentiment has cooled. Gold is gaining support because of the prospects for loose fiscal and monetary policies in the future. If that is the case, then gold's upward trend should continue." Federal Reserve officials are widely expected to lower interest rates at their meeting on Wednesday by a quarter of a percentage point. This view is supported by Friday's inflation report, which was softer than expected. The markets will be looking for any comments from Fed chair Jerome Powell that are forward-looking. In a low-interest rate environment, gold that does not yield tends to be more profitable. SPDR Gold Trust is the largest gold-backed ETF in the world. Its holdings dropped 0.52% on Friday to 1,046.93 tons from 1,052.37 tonnes on Thursday. Other than that, spot silver declined 0.3% to $48,42 per ounce. Platinum rose 0.1%, to $160724; and palladium fell 0.2%, to $1426,06.
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Sources say RPT-Reliance is racing to get battery orders out of China before export restrictions.
Reliance Industries, owned by Indian billionaire Mukesh Amani, is hurrying to ship its battery component orders out of China before new export restrictions are implemented, according to two people who were briefed about the issue. This comes as global concerns grow over how Beijing plans to enforce its expanding export control regime. One source said that a team from Reliance had travelled to China in order to accelerate the work. Reliance, as well as the Ministry of Commerce of China, did not respond when asked for comment. Due to the sensitive nature of the situation, the people refused to be identified. To maintain its competitive edge, Beijing has introduced a new rule this month that requires companies to obtain permission before exporting equipment for the battery supply chain. The new restrictions will take effect on November 8. The second source said that at least a dozen foreign customers in the Chinese battery industry are in the same situation as Reliance. Some of them were sacrificing quality assurance and other final stages of production to expedite the shipment of goods. The second source stated, "Who cares that it hasn't yet been painted or if the screws haven’t been checked?" They are saying that we will do the testing when it lands. Just get it out of the door. CHINA HASS A MAJOR ROLE INSIDE THE BATTERY SUPPLY CHAIN The person said that without the Chinese gear Reliance could not fulfill its plan to locally produce or assemble batteries to store the energy generated by its mega solar project, which is being promoted by the Indian Government to reduce dependence on fossil fuels. According to SNE Research, six of the top 10 battery manufacturers in the world are Chinese. People did not specify which Chinese companies provided Reliance. CATL, China’s largest battery manufacturer, stated in a press release that it is confident exports of its products to overseas factories will proceed smoothly under the newly implemented export regime. The export of materials and equipment needed for our European plants is proceeding as planned, it stated. China exported batteries worth $48 billion in the first eight month of this year. This is up 26% from the same period of last year. China's export of batteries adds to the concern that key technologies can be reliant on Beijing and become entangled in trade disputes. China's export restrictions on rare earths has highlighted the dangers of being dependent on a single supplier. Export controls introduced by China in April led to shortages which threatened to cripple global car production. The second source stated that Chinese battery manufacturers are assuring their foreign customers that there is no need to worry about such drastic changes for batteries. Export licences will be issued quickly and widely in the first few months after the new regime takes effect. In the meantime, foreign companies must play a waiting-game. The first source said, "It's a very tense atmosphere." (Reporting from Lewis Jackson in Beijing, Aditi in Delhi and Zhang Yan in Beijing. Editing by Brenda Goh & Jane Merriman.
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Dollar drops ahead of Fed meeting, stocks soar amid optimism about trade deals
Asian stocks soared on Monday and the dollar slowed as signs of eased trade tensions between China & the U.S. boosted risk appetite. This was a good start to the week, which will be highlighted by central bank meetings & megacap earnings. On Sunday, top Chinese and U.S. economists hammered out the framework for a trade agreement that U.S. president Donald Trump and his Chinese equivalent Xi Jinping will decide on this week at their eagerly awaited meeting in South Korea. The trade agreement would stop the steeper American tariffs, and Chinese export controls on rare earths. This would help calm investor nerves frayed by the escalating tensions in trade between world's two largest economies. Stocks soared, with South Korea’s KOSPI adding more than 2 percent each and Japan’s Nikkei crossing landmarks and reaching record highs. MSCI's broadest Asia-Pacific share index outside Japan increased by 1.3%. Investors will be looking for confirmation that the current trade truce is still in place and that China’s reform and stimulus signals are translating into tangible growth momentum, said Charu Chanana. Chief investment strategist at Saxo. Nasdaq Futures rose by 0.88%. European futures rose 0.5%. The Nikkei broke 50,000 for the very first time, while the Kospi rose over 4,000. The Australian dollar (often seen as a proxy for China and a risky currency) rose 0.42% to $0.6541. This is near its two-week peak. Blue-chip stocks in China added 0.84% to the opening of Chinese shares. Hong Kong's Hang Seng index rose by 0.78%. Gold, a safe-haven, fell 1% due to trade deal optimism, while U.S. Treasuries dropped, resulting in a 2.9 basis point increase in the yield on 10-year bonds. Commodities such as soybeans, corn, and wheat surged due to trade deal prospects. Chris Weston is the head of research for Pepperstone. He said that markets have largely priced in a trade agreement as the more likely outcome. The news won't be a big surprise, and it has already been partially priced in. Weston stated that relief buying "could still increase the risk of upside in" risk-sensitive securities during the trading week. CENTRAL BANK RESULTS ARE AWAIT This week, investors will also focus on the central bank meetings taking place in Japan, Canada and Europe. Federal Reserve rates are expected to be cut by 25 basis points, after September data showed that U.S. consumer price increases were slightly lower than expected. However, the impact of the government shutdown on data is still a concern. "While it was difficult for the markets not to expect a 25-bps reduction at the next meeting, the inflation data should encourage expectations of a further 25-bps in December, particularly if the labour data remain sluggish," stated Harun Thilak. He is the head of global capital market for Validus Risk Management. Dollar was little changed, at 152.93yen. It hovered near a 2-week high. Last time, the euro bought $1.1635. In early trading, the dollar index fell 0.1% to 98.824. Both the European Central Bank (ECB) and Bank of Japan (BoJ) are expected to keep rates unchanged this week. The BOJ will likely debate whether the conditions are right to resume rate increases as concerns about a recession caused by tariffs ease. However, political complications could keep them on hold. Focus on Megacap Earnings This week, the U.S. earnings reporting season will be at its busiest. Megacaps like Microsoft, Apple and Alphabet, as well as Amazon and Meta Platforms, are all expected to release results. The "Magnificent 7", a grouping of companies with large market capitalisations and whose shares dominate equity indices, are expected to continue posting stronger results this quarter, even though the margin of profit between them and the rest of index has narrowed. Stock market performance has been driven by the enthusiasm of a number of megacap companies in the artificial-intelligence industry. Chanana, from Saxo, said that the U.S. earnings and guidance provided by big tech companies will be crucial in gauging whether corporate profits are resilient enough to survive a slowing economic environment. The coming week will determine whether the optimism has lasted.
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Oil prices increase after US and China sign trade agreement
Oil prices increased in the early trading on Monday, after U.S. economic officials and Chinese economic officials drew up a framework for a trade deal. This eased fears that tariffs or export restrictions between two of the world's largest oil consumers would dent global growth. Brent crude futures were up 46 cents or 0.7% to $66.40 per barrel at 0027 GMT. U.S. West Texas Intermediate Crude Futures rose 46 cents or 0.75 percent to $61.96, following gains of 8.9% and 7.7% respectively in the previous weeks due to U.S. & EU sanctions against Russia. Haitong Securities stated in a report that the market's expectations had improved after new sanctions against Russia and a easing in tensions between the U.S. and China. This was in response to concerns over crude oversupply, which drove prices lower earlier in October. U.S. Treasury secretary Scott Bessent stated on Sunday that top Chinese and U.S. economists had hammered out a "very substantive framework" for a deal in Kuala Lumpur. This would allow President Donald Trump to meet with President Xi Jinping later this week to discuss the trade cooperation. Bessent stated that the framework would allow for 100% U.S. duty-free tariffs to be avoided on Chinese products and to defer China's export controls of rare earths. Trump said that he is optimistic about reaching a deal with Beijing, and expects to meet both in China and America. Trump said, "I believe we will have a deal" with China. "We will meet with them later in China, and then we will meet in the U.S. either in Washington or Mar-a-Lago." Tony Sycamore is a market analyst with IG. He said that the positive framework of trade deals helps to offset concerns about Russia's ability to offset new U.S. Sanctions, which target Rosneft, and Lukoil by offering deeper discounts, and using shadow fleets, in order lure buyers. Yang An, analyst at Haitong Securities, said: "However, in the event that sanctions against Russian energy prove less effective than anticipated, oversupply could return to market." (Reporting and editing by Sam Li, Lewis Jackson and Sonali Paul).
Iron ore prices rise on optimism about US-China trade agreement
Iron ore prices rose on Monday as signs of reduced trade tensions between China, the United States and Europe outweighed concerns over demand from China, which is the world's largest consumer.
On Sunday, top Chinese and U.S. economists hammered out the framework for a trade agreement that U.S. president Donald Trump and Chinese president Xi Jinping will decide on this week.
By 0208 GMT, the most traded January iron ore contract at China's Dalian Commodity Exchange rose by 0.32% to $774 yuan (US$108.66) per metric ton.
As of 1:58 GMT, the benchmark November iron ore traded on Singapore Exchange was $0.24 per ton higher.
The gains were limited, however, as the production curtailments in Tangshan, China's top steel hub, raised concerns over demand for this key ingredient.
On Sunday evening, the city of Tangshan in northern China announced that it would launch a Level-2 Emergency Response on Monday due to a forecast for worsening air quality.
During such emergencies, local steel mills must typically reduce production.
Beijing's proposal to implement a more stringent capacity swap plan, which would reduce current capacity and rebalance the supply and demand 14 months after ceasing the previous programme, cast a shadow over the outlook for iron ore.
Coking coal, coke and other steelmaking materials fell by 0.84% and 0.71 %, respectively.
The benchmarks for steel on the Shanghai Futures Exchange have gained some ground. Rebar gained 0.46%; hot-rolled coils advanced 0.58%; wire rod rose by 0.78%; and stainless steel edged up by 0.04%.
(source: Reuters)