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MORNING BID EUROPE - Chip away
Rae Wee gives us a look at what the European and global markets will be like tomorrow. Global chip losses continued into Friday. While South Korean stocks were spared due to a holiday, Taiwanese and Japanese shares took the brunt. Even TSMC's 77% higher than expected earnings the day before failed to impress investors as the shares of the Taiwanese chips manufacturing giant fell 4%. The movements across Asia have set Europe up for an uncertain start. The EUROSTOXX Futures fell?0.9% while the DAX Futures dropped 0.6%. Investors have begun to pull back from the semiconductor market after a strong year. Concerns over AI spending are now at the forefront. The over-subscription of CXMT's initial public offering of $8.6 billion reflects investor caution. It is lower than the majority of recent Chinese IPOs. Donald Trump, the U.S. president, declassified on Thursday intelligence that he claimed showed Chinese interference in U.S. election, renewing his long-running attack on election security, despite an U.S. Intelligence Assessment that found no proof Beijing affected the 2020 votes that he lost. The markets appeared to dismiss his claims, but Trump’s harsh language towards China could rock a relationship that had been stabilised following last year’s costly trade conflict. Trump hopes to have a meeting with Chinese President Xi Jinping about?improving the trade relations in September. Iran said it had launched a new?attack on U.S. military installations in the Gulf, after the sixth night of U.S. strikes on Iranian military sites. China's foreign exchange regulator announced on Friday that it will allocate fresh quotas to qualified institutional investors for their overseas investments. This follows a recent crackdown on illegal capital flows. The following are the key?events? that could impact markets on Friday: - U.S. industrial production, housing data and import prices Earnings of companies including Swedbank and Danske Bank. Sweco and Volvo. Burberry Group. Reopening the 1-month, 3-month, and 6-month UK Government Debt Auctions
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India will launch headline service output index in a few months, Statistics Secretary says
India's statistics secretary announced that the country will launch a headline "Index of Services Production" within months. This index will give investors for the first time a monthly measure of output in India's dominant service sector. The Ministry of Statistics and Programme Implementation published trial monthly indices on Tuesday for 19 sub-sectors of formal services, covering approximately 60% of that economy. However, it did not release a composite headline measurement. India does not have an official monthly measure of output in its dominant service sector. In an interview late Thursday, Statistics Secretary Saurabh Garg stated that "we?are hopeful" to be able?to release a 'headline number? as well. Garg explained that the ministry will assess whether it should include other sectors, such as education and health, before launching a composite index. However, the timeline for launching this index will depend on how reliable the data is. He said that the headline index would initially use the 19 existing sectors. However, work is ongoing to extend coverage beyond the 60% formal "services economy". The April trial data showed a broad-based increase, with 14 of?19 subsectors showing double-digit gains. Leading the way were accommodation and food services retail trade, and administrative services. Air transport declined, while rail transport was largely flat. Garg stated that the monthly services index along with labour, industry and infrastructure indicators would improve 'the government's ability of assessing economic activity in real time. I am certain it will improve the robustness and reliability of the GDP number. Reporting by Shubham Bhatra in New Delhi, editing by Nivedita Boutattacharjee
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What is the EU emissions trading system (ETS)?
The European Commission is set to propose a major overhaul of Europe's largest climate change policy, the EU's emission trading system. This affects all industries, power plants, airlines, and shipping firms across the continent. What you should know What is the EU ETS? The Emissions Trading System (ETS) is the EU's flagship policy to reduce greenhouse gas emissions. Since 2005, the EU has mandated that industries and power plants in Europe purchase a permit per metric ton of CO2 they emit. This creates a financial incentive for them to invest in cleaner technologies. Emissions from ships and flights within Europe are also included, as well as 50% of emissions from international shipping to or from EU ports. Where does it apply? The EU ETS is applicable to all 27 EU member countries as well as Iceland, Liechtenstein, and Norway, who are not EU members. The system is linked to Switzerland's ETS. The UK left the EU ETS after leaving the EU. Now, the two sides are negotiating to connect their respective ETSs. China and South Korea have carbon prices as well, but EU's is strictest and the most expensive. How does it work? The EU requires that companies surrender enough CO2 permits each year to cover their emissions. The ETS limits the number of permits that can be released to the market every year in order to reduce emissions. Permits are exchanged on energy exchanges. Low-emitting firms can sell their extra permits to earn?money and large polluters may buy extras as needed. Around 57% of ETS permits sold each year are used to reduce CO2 emissions. The rest is given away to companies to help them compete with foreign firms who don't have to pay for CO2 costs. The EU does NOT control the price of permits for CO2, which has increased from less than EUR10 per ton in 2010 to around EUR80 today. The ETS has a "market stabilization reserve" that can add or remove?permits to the market in the event of a dramatic change in supply. This can indirectly help control price swings. Does it work? Yes, in a nutshell. Since 2005, CO2 emissions in sectors covered by the EU ETS has been halved. The CO2 price made renewable energy and natural gas plants more cost-effective than coal. However, the emissions of heavy industry barely decreased until 2020. Some companies claim that the reductions in emissions since then are due to plant closures, deindustrialisation and Europe's high prices for energy and low demand. Why is the ETS being revised? ETS was designed to meet the EU 2030 climate goal. The scheme will run out of permits for CO2 in 2039 if left unchanged. This is a trend that needs to be changed, as many industries won't have achieved zero emissions before then. The revision is aimed at extending the system to 2030 and aligning it with the EU's 2040 target to reduce net emissions by 90 percent, which was agreed on last year. It is happening during a backlash in Europe against the green agenda. Countries like Italy and Poland claim that it undermines industrial competitiveness. The key question is if the upcoming revision of the?ETS will weaken it in response to certain governments' and businesses' complaints that the system puts Europe at an unfair disadvantage on global markets. What's at Stake? The EU's climate targets are worth hundreds of billions of euro. Around 40% of EU emissions are covered by the ETS. The EU will not meet its emission-reduction goals without it. Since 2013, the ETS has generated EUR260billion in revenue. About 75-80% goes to the national budgets of EU countries, and the rest is put into EU funds that finance clean energy investment. Brussels plans to tighten rules for how countries use their ETS revenue. This move is likely to be opposed by national governments. Since its launch, the EU has also provided industries with free CO2 permits valued at EUR 250 billion. This will be determined by the revision. Who wants what? BASF, a German chemical giant, has demanded that the EU stop increasing ETS costs and maintain industries' free licenses. Some, such as the SSAB steel company in Sweden, have made significant investments in CO2-cutting technology and want a high ETS price so that their investments can be competitive. The governments are also divided. Italy and Poland are against the ETS, while Sweden and Denmark want to keep it. What happens next? After the Commission's proposal, which was made on Friday, EU member states and the European Parlament will present their own amendments and negotiate final rules. This process could take up to a year. The Commission will likely fast-track some parts of its proposal, which is due to be approved in this year. This includes rules that increase the number of free allowances for industries from this year. (Reporting and editing by Jan Harvey; Kate Abnett)
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Oil prices rise on US-Iran hostilities intensifying, and the threat of Red Sea closure
Oil prices increased on Friday as a result of the U.S. and Iran intensifying their attacks in the Gulf. Their broken 'truce' has limited oil flow out of the Strait of Hormuz, and 'Tehran asked the Houthi political organisation and military organization to be ready to close the Red Sea export route. Brent crude futures gained 70 cents or 0.83% to $84.93 a bar at 0312 GMT. U.S. West Texas intermediate futures also rose 81 cents or 1.03% to $79.76 a bar, erasing the losses of the previous session. Both benchmark contracts have gained nearly 12% in the past week. Brent is on course for a weekly gain of three consecutive weeks, and WTI is on pace to gain a second weekly. Tim Waterer is the chief market analyst for KCM Trade. He said that "the potential threat of a major disruption in supply at the Red Sea further complicates?the outlook for global oil". He said the "dual risk scenario" kept a geopolitical bonus embedded in both benchmarks. On Wednesday, for the first time after a memorandum o' understanding had paused the fighting last month, U.S. launched two large waves of air strikes in one day, mainly at targets near Iran’s southern coast. It continued to fire on Thursday. Qatar's Defence Ministry said that its forces had thwarted a missile attack by Iran early on Friday morning, and the Interior Ministry said a child suffered injuries from shrapnel as a result of interception operations. Fatih Bibil, Executive Director of the International Energy Agency (IEA), said on Thursday in Washington at an event organized by the Council on Foreign Relations. He said: "We should worry, and I'm worried, if things don't improve in the next few weeks." The U.S. Central Command issued a statement saying that American forces began "a new 'wave of strikes against Iran for a sixth consecutive night in order to further degrade Iranian armed capabilities" at 2 pm EDT (1800 GMT), which is 9:30 pm in?Tehran. Tehran responded with missiles and unmanned aerial vehicles aimed at U.S. bases in neighbouring states, including an attack on a newly expanded airbase in Jordan. Three sources said that Iran's leadership had warned its Houthi allies to be ready to shut down?the Red Sea Oil Route if the U.S. struck Iranian power infrastructure. IG analysts stated that technically, WTI may test the mid $80s if the price holds above the key support at the mid $70s.
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Seven & i shares rise 3% after Zabka convenience stores stake talks
Seven & i shares rose 3% on Friday in Tokyo after the Japanese retailer announced that it is in talks to buy a stake from Polish convenience store operator Zabka Group. Nikkei reports that the '7-Eleven owner may consider acquiring Zabka share held by funds. The investment is likely to be several hundred billion dollars (several billion yen). The deal would expand Seven & i’s reach beyond its strongholds of Japan and North America to Eastern Europe. This is part of the retailer’s efforts to grow under the leadership Stephen Dacus. Naoshi Matsumoto is an analyst with Yamawa Securities. He said that defensive sectors, centered on domestic demand, are being purchased amid overall market weakness caused by falling semiconductor stocks. Aeon, Japan’s largest retailer, rose 3%, while memory chipmaker Kioxia dropped 15%. Zabka (listed in Warsaw) which operates more than 13,000 shops in Poland and Romania rose 11% on the news. In 2021 Seven & i will acquire Speedway petrol stations, expanding its presence in the U.S. It has already opened outlets in three Nordic nations and has made Europe a "fourth growth pillar". Seven is struggling to improve their flagging business after a fight with Canadian competitor Alimentation Couche-Tard, who had attempted to buy it in what would have been Japan’s largest-ever overseas acquisition. Investors have been putting pressure on the retailer due to its lackluster returns. They also want it to focus more on its core business of convenience stores. Last year, it sold its supermarket business to Bain Capital. Bloomberg News reported that SoftBank Corp. and mobile payments provider PayPay were in talks about?investing several hundred billion yen into Seven & i, with Sumitomo 'Mitsui Card? also taking a stake. In a note, Bernstein analysts wrote that a partnership reflects a "history of digital 'defeat", and Seven & i is "buying 'takeover defense with shareholder money." The analysts stated that Seven is plugging the largest weakness it has with outside capital, and installing friendly investors as a countermeasure to a takeover.
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US and Australia invest $2 billion to advance Alcoa Gallium Project (October 21).
As part of an important?minerals deal aimed at countering China’s?hold?over the industry?, the United States and Australia provided financial support to a number of Australian companies. The shares in these firms rose sharply on Tuesday. The deal between U.S. president Donald Trump and Australian prime minister Anthony Albanese commits the two countries to investing at least $1 billion in each of the next six month's mining and processing projects, and to setting a floor price for essential?minerals. This is a move long sought after by Western miners. The U.S. Export-Import Bank said it had sent seven letters of interest (LOIs), totaling?more than 2.2 billion dollars, to advance U.S.-aligned vital minerals projects in Australia. The LOIs were sent to Arafura Rare Earths and Northern Minerals. EXIM stated in a press release that these LOIs represent the next step in securing minerals for American manufacturing, national security and other strategic industries. Arafura shares were up 8% this morning, while Northern Minerals, Latrobe Magnesium and VHM rose 11%, 15 % and 20 % respectively. Sunrise, however, was trading at a lower price. This compares to a 0.7% gain in the broader market. The governments also said that they would help Alcoa, a U.S. aluminium company, to advance its plan to build a galium plant in Western Australia alongside its alumina refining facility. This could provide up to 10% of the global supply of gallium. Alcoa shares listed in Australia rose 8% after the announcement. The semiconductor and defense industries, in particular, rely on the gallium recovered as a byproduct of the alumina refinement process. Australia announced in a statement that it would provide concessional equity funding of up to 200 million dollars for the project. This includes offtake rights for Australia's government. The U.S. would also invest in equity with offtake rights. Alcoa signed a joint-development agreement for the project in August with Japan Australia Gallium Associates, a venture between Sojitz Corp and the Japanese government. Alcoa and a special purpose vehicle, owned by the U.S. government and the Australian government, are expected to form a joint-venture with JAGA, to build the plant.
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Oil prices rise on US-Iran hostilities intensifying and the threat of Red Sea closure
Oil prices rose slightly on Friday as the U.S., 'Iran and their broken truce limited oil flow out of the Strait of Hormuz. Tehran asked the Houthi movement if they were ready to'shut down the Red Sea export route. Brent crude futures increased $1.05 or approximately 1.25% to $85.28 per barrel by 0118 GMT. U.S. West Texas Intermediate Futures also rose $1.03 or 1.3% to $79.98 per barrel, erasing the losses from the previous day. Both benchmark contracts rose nearly 12% in the past week. Brent is on course for its third consecutive weekly gain, and WTI has a second weekly gain. The United States launched two large airstrikes in one day, mainly on targets near Iran’s southern coast. They continued to fire on Thursday. Fatih Birol, Executive Director of the International Energy Agency (IEA), said on Thursday that oil security was still a crucial issue at an event held by the Council on Foreign Relations in Washington. He said: "We should worry, and I'm worried, if things don't improve in the coming weeks." U.S. Central Command released a statement saying that U.S. Forces began "a new phase of strikes against Iran" for the "sixth consecutive evening to further degrade Iranian capabilities". This was at 2 pm EDT (1800 GMT), or 9:30 in Tehran. Tehran responded with missiles and drones that were targeted at U.S. bases in neighboring states. This included a barrage on a recently expanded air base in Jordan. Three sources said that Iran's leadership had warned its Houthi allies they would?close down the Red Sea oil routes if the U.S. struck?Iranian energy infrastructure. IG analysts stated that technically, WTI may test the mid $80s if the price holds above the key?support of the mid $70s. Separately Trump?Media and Technology Group announced a licensed, paid-for?data feed which will allow banks and trading firms to have "the fastest" possible access to posts by influential Truth Social accounts such as those of President Donald Trump, whose posts are often what move the oil markets.
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Oil prices drop as chipmakers pressure equity indexes worldwide
Equities around the globe fell Thursday, as investors sold off heavy-weight chips stocks. Meanwhile, the U.S. Dollar and Treasury yields increased after the latest economic releases as well as as the Middle East war intensified. Chip stocks fell from Asia to the U.S., as ?higher-than-expected 77% ?earnings growth from Taiwanese chip manufacturing giant TSMC was not enough to impress investors who have heavily leaned into technology stocks related to artificial intelligence. According to LSEG, the U.S. reporting season for the second quarter started well. Analyst expectations for quarterly earnings increased to 24,8% on Wednesday, from 23,7% last week. Tony Welch is the chief investment officer of SignatureFD. He said that high expectations can lead to short-term weakness. When you have a lot optimism on the market, you need to make sure that everything goes right. "Any negative news can cause the market to fall," said he. There's a great deal of confidence in the market right now. It's not necessarily a bad thing, but it creates a difficult hurdle for the market to continue going higher. The Dow Jones Industrial Average dropped 105.67, or 0.2% to 52,552.97. The S&P 500 also fell 38.63, or 0.5% to 7,533.77. And the Nasdaq Composite was down 387.28, or 1.5% to 25,881.95. The MSCI index of global stocks fell by 6.49 points (0.6%) to 1,121.65. The pan-European STOXX 600 closed at 0.16%. South Korea's KOSPI, a technology-heavy index, fell by more than 6%. Japan's Nikkei also closed almost 3% lower. The Philadelphia semiconductor index fell 4.3% in its second consecutive daily loss. The AI trade is no longer priced on growth. The price is based on 'perfection. Gene Goldman is the chief investment officer of Cetera, a California-based firm. "Any earnings report that is merely great instead of flawless gets sold," he said. OIL SLIPS WHILE WAR ESCALATES Iran, the United States and other countries exchanged fire Thursday, intensifying the attacks that have been ongoing since the weekend. This has largely undone the truce which halted the fighting last month. Iran has signaled that, while the two countries fight for control of Strait of Hormuz it may also pressure its Houthi ally in Yemen to shut the Bab al-Mandeb Strait, which is another important oil route, at the mouth of Red Sea. Oil futures continued to decline, with U.S. Crude falling 0.8% or 65 cents per barrel. Brent was down 0.85% or 72 cents. U.S. Retail sales rose 0.2% in June in line with expectations as lower gas prices affected receipts at service station. Consumers, however, continued to support the underlying spending. Initial weekly jobless claims fell to 208,000 seasonally adjusted, which was below the 217,000 economists had predicted. U.S. Treasury rates were modestly higher following these figures, which did not change investors' expectations about the?path? of interest rate changes from the Federal Reserve. The yield on the benchmark 10-year U.S. notes increased 1.44 basis point to 4.559% from 4.545% on Wednesday. Meanwhile, the 30-year bond's yield rose by 0.25 basis point to 5.0855%. The yield on the 2-year note, which is usually in line with expectations of interest rates from the Federal Reserve, increased 2.55 basis points, to 4.154%. The dollar rose against major peers despite being near its one-month low. This was due to expectations that the U.S. will continue to be resilient, and that Fed rates will stay the same this month. The dollar index (which measures the greenback versus a basket of currencies, including the yen, the euro and others) rose by 0.3% to 100.74 while the euro dropped 0.2% to $1.1441. The dollar strengthened by 0.1% against the Japanese yen to 162.37. Sterling fell 0.5% to $1.3475 after reaching a two-month high on Wednesday. Gold fell to its lowest level in two weeks after two sessions of gains. Spot gold dropped 2.1% to $3.976.24 per ounce, while spot silver fell by 3.8% to $55.56. (Reporting and editing by Thomas Derpinghaus Joe Bavier David Gaffen, Caroline Valetkevitch in New York, Chuck Mikolajczak, Marc Jones in London and Stella Qiu, Sydney)
Gold set to suffer its biggest weekly loss since 2006 as inflation fears fuelled by the Iran War
Gold was on course for its largest 'weekly loss' in six years on Friday as the escalating U.S. - Iran clashes pushed up oil prices. This increased inflationary pressures, and strengthened the case for higher U.S. rates.
Gold spot was up 0.5% to $3,988.20 an ounce at 0313 GMT. It had been trading at its lowest level since July 1, earlier in the session. U.S. Gold futures for August delivery remained unchanged at $3,992.
Metal prices have fallen 3.2% this week, the most since June 1. The ongoing Middle East tensions are outweighing support provided by softer U.S. June inflation figures that were released this week.
Tim Waterer is the chief market analyst for KCM Trade. He said that despite the lower CPI and PPI numbers, traders couldn't rejoice over the lower inflation figures because of the recent spike in oil prices.
Gold is still being held back by geopolitical concerns in the Middle East, primarily due to inflation and yield worries.
Iran and the United States traded increasingly intense fire on Thursday, in an escalation lasting a week that has mostly unraveled last month's ceasefire.
The oil prices have increased by about 12% this week, due to the limited oil flow out of the Strait of Hormuz. Tehran has asked the Houthi movement to be ready to close the Red Sea export route.
Oil prices are on the rise, which could increase inflation fears and lead to a rate hike. In a high interest rate environment, non-yielding assets like gold tend to struggle as investors look for better-paying assets.
Lorie Logan, the Dallas Federal Reserve president, became the first new Fed colleague of Chairman Kevin Warsh to publicly call for a rate increase.
Fed Vice-Chair Philip Jefferson said he would be?open to raising rates in the event of a near-term decline in inflation.
CME FedWatch Tool shows that traders are pricing in a 73% probability of an interest rate increase in December.
Other than that, spot silver dropped 0.5% per ounce to $55.22, platinum fell 0.7% to 1,605.62, and palladium slipped 0.4% to 1 244.86. All three metals are headed for a loss this week.
(source: Reuters)