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Asian stocks are on track for a strong week-end gain as US rate hike expectations fade
Asian stocks rose on the Friday as they prepared to?have their strongest week in 2 months, as benign inflation data dented expectation of an imminent U.S. interest rate hike. However,?failing talks to end?the war in 'the Middle East will likely keep risk sentiment under control. Brent?futures remained at $87.03 a barrel, following a decline on Thursday, but were on track for a weekly gain of 4%, ending a two-week loss streak. This was after the U.S. warned to increase economic pressure against Iran, including by extending a navy blockade. The markets have, so far, shrugged off the lackluster progress made in ending the Iran War and instead focused on the AI theme following strong earnings which calmed investors' concerns about massive AI expenditure. European stock futures showed a higher opening, while Nasdaq?futures fell 0.1%. The U.S. Inflation Reports this week indicated that pricing pressure was under control. This lowered the chances of a Federal Reserve rate hike next month. Charu Chanana is the chief investment strategist at Saxo. He said that risk appetite has held for now, as the immediate Fed rate hike risk was repriced lower. Chanana said, "This is still headline-driven rally and not a risk-free regime." "Without clarity about the Middle East/Hormuz a new oil spike could quickly bring inflation and Fed worries back." MSCI's broadest Asia-Pacific share index outside Japan gained?0.16%. This is its best performance since mid-June. Japan's Nikkei rose 1.5%. South Korea's KOSPI - a barometer of investor sentiment in the AI trade - rose 1.8%. It is on track to snap a 7 week losing streak by gaining nearly 11%. John Sidawi is a senior portfolio manager at Federated Hermes for fixed income. He said that a feature of the markets over recent months was a growing disconnect between geopolitical uncertainties and asset price volatility. For now, the markets seem to be willing to accept a considerable amount of uncertainty before demanding higher premiums. This equilibrium is not likely to last forever," Sidawi stated. A meaningful escalation of conflict or a path to resolution could finally force the investors off the sidelines. This could trigger a larger volatility reaction than current market pricing implies. YEN STUCK IN INTERVENTION LOOP The yen is at 159.36 to the dollar. This level is close to 160, which traders believe will trigger a new round of yen purchases from Tokyo after last month's joint intervention with the U.S. failed to stabilize the fragile currency. The idea that the Bank of Japan might finally start to "support" the yen has gained traction, with traders pricing in the prospect of a rate increase next month. However, investors could be disappointed by the BOJ's September meeting if it is not perceived as hawkish. Padhraic G Garvey is the head of ING's global rates and debt strategy. He said that the yen was weak because of "an uber cautious Bank of Japan" and a policy interest rate?that remained too low. Garvey said that rate increases can ease this tension. The sooner they are implemented, the better. While this could be construed negatively for the economy, there is also a choice. Do you want to protect the yen or not? Gold was down 0.6% to $4,325 an ounce in commodities. Traders locked in profits following the yellow metal's highest level since June early in the previous session. This is due to a dimming expectation of a short-term increase. CME FedWatch showed that traders now price in a 35% probability of the Fed raising rates next month compared to 55% one week ago.
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Corporate concern over El Nino hits multi-year high
According to an analysis of company filings and earnings calls, the risk of a particularly strong 'El Nino' and how to adapt have risen to the top of discussions in companies. Scientists say that a "very strong" El Nino event is becoming more likely. It could be one of the most disruptive events since 1950. They also said that the impact of El Nino is difficult to predict, as the man-made global heating compounds the natural phenomenon. Companies are challenged to reduce the impact of crop disruptions and changes in energy demand, and to sometimes even profit from them. AlphaSense, a market intelligence company, reviewed 1,443 corporate documents and conference calls from May 1 to August 4. 478 companies mentioned weather phenomena in these documents. 316 companies made mentions during the calls - the highest number since 2019. Companies in the banking, food and chemicals sectors are leading this trend. They focus more on the scope of their exposure, and contingency plans, than they do on a precise estimate of how it will affect sales, earnings, or cash flow. Nearly 900 documents were mentioned by Indian companies, which heavily depend on monsoon rain. This is nearly ten times more than the number of mentions from U.S. based firms. The Philippines, Malaysia, and Brazil followed. Climate change is fueling warmer, drier and more erratic weather conditions, making predictions more difficult, both from a scientific and business perspective. She said that clients are increasingly focused on risk and preparedness, with the firm helping them to stress-test their supply chains. Dartmouth College's study of 2023 found that previous El Ninos had a negative impact on the economy, with losses for 1982-83, 1997-98 and the two events in between being $4.1 trillion and $5 trillion respectively over the next five years. INCREASED CAPITAL EXPENDITURE Juan Carlos Ortiz said, in a July 31, earnings call, that Compania de Mines Buenaventura, a Peruvian mining company, had added $12 million to their capital expenditure plan, to cover El Nino related risks. He added that each mine's safety committee has mapped out the flood risks and will spend their share of extra money on preparation, such as increasing pumping capacities. Bikash Pradosad, Chief Financial Officer of UPL Limited in India, said on a 3 August earnings call that delays in plantings both in India and Europe would push some demand to 'later quarters. Shrikant Kanhere is the chief executive officer of AWL Agri Business Limited. One of India's biggest consumer goods companies. He said El Nino was a "serious concern" and that rural sales could be at risk if agricultural disruptions reduced people's income. Climate Monitor reported that on August 10th, parts of India had already reached temperatures 8 to 9 degrees Celsius higher than the 1961-1990 average. The average temperature in Asia was 3.9 degrees Celsius higher. El Nino is a positive development for some. AES, a U.S.-based energy company, said that higher spot electricity prices and sales in Colombia increased second-quarter revenue by $67 million. Benjamin Bahr of First Eagle Investments, a U.S.-based portfolio manager, says that the prospect of lower harvests in Asia could also boost farmers in the United States. The U.S. harvest will also be completed, I think. "Those who have crops in storage will have less risk, and could even have a greater upside, if crop prices react positively," said he. (Reporting and editing by Barbara Lewis; reporting by Simon Jessop)
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MORNING BID EUROPE-Yen stuck in twilight zone
Ankur Banerjee gives us a look at what the day will bring for the European and global markets. The yen is back in the intervention area, but it's fate now seems to depend on the Fed's policies and the Bank of Japan's aggressive hikes, after the joint operation with the U.S.' failed to stop the currency's fall. The currency is heading for its worst three-month period, with the rate hovering around 159.37 dollars per U.S. Dollar, moving ever closer to 160, which could trigger another round of intervention. Tokyo spent billions to prop up the yen between April and May, as well as with the U.S. by the end of July. It has said repeatedly that it is ready to step in again if necessary. The yen has remained weak, in part because of the interest rate differential between Japan and the other major currencies. The math is not enough. The yield on the 10-year U.S. Treasury is still close to 4,7%, while it's only 2.9% for Japanese government bonds. This gap is large enough to maintain the carry trade, no matter how much money is thrown in defense of the yen. The markets now bet that it's the Bank of Japan who will help stop the yen from falling, and traders are betting on an increased pace of interest rate hikes by a central banking institution which some analysts claim has been relatively slow to increase rates. Mitsuhiro Furusawa, Tokyo's former top currency diplomat said that most market players believed the BOJ would raise rates in September. I agree with him. But what is important is for the central bank to communicate the likelihood of an accelerated pace of rate hikes. A recent run of 'benign U.S. inflation data has also helped the yen, lowering the odds of an imminent rate increase from the Federal Reserve. However, the risk remains as long as a deal to end the conflict in the Middle East is still elusive. European stock futures indicate a modestly increased open, as risk appetite was bolstered this week by economic data which showed little pricing pressure. The following are key developments that may influence the markets on Friday. France: July inflation figures * EU: Q2 GDP and employment data (Editing Sonali Paul).
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Copper prices set to fall, ending six-week winning streak due to demand concerns
Copper fell on Friday, and it was expected to snap its longest weekly gains since '2020. It and the wider Industrial Metals Complex were weighed down by worries about 'demand prospects. Benchmark three-month Copper on the??London Metal Exchange fell 0.56% to $14,069 per metric ton at 0300 GMT. After six weeks of gains, the metal will end this week at its current level. The Shanghai Futures Exchange's most traded copper contract fell?0.33% to 107460 yuan (15,935.82 USD) per ton. Metal demand is still a concern, despite the fact that inflationary pressures are easing and interest rate fears are fading. Fastmarkets analyst, Andy Farida, said that while the demand for base metals appears resilient, it's still questionable whether it can maintain its strong momentum considering how rapidly asset prices have risen and wage growth has been subdued. The benign U.S. data on inflation has helped to reduce the likelihood that a U.S. Federal Reserve will raise rates next month. This could have dampened economic activity and weighed down industrial minerals such as copper. According to CME's FedWatch, interest rate traders have reduced the probability of the Fed raising rates during its September meeting from 44% last Friday. The biggest loser was aluminium on Friday. The price of the light metal at the?LME dropped by 0.98%, ending the week with a 1.42% decrease. The price of alumina on the SHFE fell by 1.28%, ending the week at 0.64% less than when it began. The?Middle East's supply recovery prospects eased some of the expected tightness, and the alumina production scale at Norsk Hydro Alunorte in Brazil began scaling back on Thursday after a temporary output reduction that supported the prices. Zinc fell 0.61% on the LME, while lead dropped?0.26%. Nickel also declined 0.66%. Tin also fell 0.28%. Zinc, lead, nickel, and tin all dropped in price.
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Oil prices rise after US threatens to blockade Iran indefinitely
Prices of oil?inched up on Friday, after the United States threatened an indefinite naval blockade against Iran. This rekindled concerns about supply after the previous session's drop on a weakened outlook for demand as well as a large build-up of U.S. stockpiles. Brent futures were up 1 cent or 0.1% to $87.08 per barrel at 0247 GMT. U.S. West Texas Intermediate crude futures increased 6 cents to $81.00 a bar. Brent rallied for six sessions and WTI rose for five, putting the benchmarks on course for a weekly increase of around 4%. Susan Bell, senior Vice President for Oil Commodity Markets at Rystad, said in a recent note that despite the negative crude stock data the geopolitical background is preventing an even greater?price drop. The?United States warned on Thursday that they could continue a naval blocade against Iran indefinitely, and increase economic pressures on Tehran because ceasefire talks have stalled. In an interview with Newsmax's Rob Schmitt, Treasury Secretary Scott Bessent said: "Watch this space because more announcements are coming next week. We will?apply?measures that have never been?seen in the history of economic isolate of a nation." The latest U.S. threat comes as Iran restricts traffic through Strait of Hormuz. This area carried 20% of world oil before the conflict. Fuel prices are rising and President Donald Trump is under pressure to end the war, which is unpopular in the United States. Hossein TAEB, recently appointed head Iran's Basj Paramilitary Unit, said that the strait was "under the management of and controlled by the Islamic Republic" according to semi-official Fars News. The prospect of a prolonged war constraining the supply was 'offset' this week by OPEC and International Energy Agency lowering their outlooks on demand growth. Data showed that U.S. crude stocks had increased the most in more than three-and-a half years. Tim Waterer, KCM's chief market analyst, said that the two forces were counterweights. The result is that the market remains stable but has a hard time breaking higher as long as these opposing forces remain in place. The state news agency of the United Arab Emirates, WAM, reported that two vessels of the state-owned Abu Dhabi National Oil Company, were attacked Thursday while transiting the Strait of Hormuz. The incident was condemned by the United Arab Emirates as an Iranian attack. Reporting by Mohi Nrayan from New Delhi, and Helen Clark from Perth. Editing by Sonali P. and Clarence Fernandez.
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Moniz from Hawaii and Brooks, Canada's tube shooter, win in Tahiti
Seth Moniz of Hawaii won his first event title on the world championship tour with a display of?tube riding at the Tahiti Pro in Tahiti, Thursday. Erin Brooks, a Canadian teenager, fought back and beat Israel's Anat Leliar in the women's competition. Moniz was a standout throughout the contest held at Teahupo'o. This is the site of the 2024 Paris Olympics Surfing event and is considered to be one of the most perfect waves in the world. Even though the conditions were not as extreme as the ones earlier in the week when Kelly Slater was dominant, there were still steep drops and deep tubes. Halfway through his final match against Griffin Colapinto from California, Moniz charged into a cavern with his backhand. He squeezed out at the very last second, and rode into a screaming, splashing audience of spectators who were watching the channel. Colapinto's 7-point ride and a 9.07 score seemed to be enough to win. Moniz was not done yet. As the final hooter sounded he snared a "near replica" deep barrel for 9.10, and an incredible two-wave score of 18.17. This whole week has been surreal. The 28-year old Hawaiian claimed that he had "this crazy momentum" every time. "Surfing can be a very difficult sport. Only one person wins each time." "I worked so hard on this, and it paid off." Lelior, a finalist at the women's competition, was a bit of a shock. She threaded multiple deep barrels before emerging from the field in a cloud of spray. The Tel Aviv-born world tour rookie, aged 26, grew up surfing in the soft waves of Mediterranean Sea. He was a competitive success as a child and qualified for both the Tokyo and Paris Olympics. In the final, her top two waves were both 8 points for a combined total of 16.33 in the first half of heat. Brooks, the wildcard winner of a 2024 world championship event held in Fiji’s hollow 'waves', battled her way back to the competition with an 8.27. The clock was ticking down when Brooks, a 19-year-old Texas native, slid into the wave that would win the final. She weaved through the tube to score an 8.93 and a total two-wave score of 17.20. "The season was really tough and I lost every second round in every event. "I almost doubted myself, so to win gives me a lot more confidence," Brooks said. "The girls are so much better now and I'm really disappointed with my results." "But I'm pleased with this one." Next up on the tour is Fiji. This powerful left-hand tropical reef break is another strong destination. Pipeline, Hawaii will crown the world champions in December. (Reporting from Sydney by Lincoln Feast; editing by Peter Rutherford)
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Asian stocks to gain weekly on the back of fading US rate hike bets
The Asian stock market rose on Friday as the inflation data lowered expectations for an imminent U.S. interest rate hike. However, the faltering talks to end the Middle East war are likely to keep the risk sentiment in check. Brent?futures remained steady at $87.03 a barrel, following a decline on Thursday, but were on track for a weekly gain of 4%, ending a two-week loss streak. This was after the U.S. warned to increase economic pressure against Iran, including by extending a navy blockade. The markets have largely ignored the lack of progress made in the Iran War, focusing instead on the AI theme and global monetary policy outlook. The U.S. Inflation Reports this week indicated that pricing pressure was under control. This lowered the chances of a Federal Reserve rate increase next month. Charu Chanana is the chief investment strategist for Saxo. He said that risk appetite can be held because immediate Fed hike risks have been priced lower. Chanana said, "But it's still headline-driven rally and not a risk-free regime." "Without clarity about the Middle East/Hormuz a new oil spike could quickly bring inflation and Fed worries back." MSCI's broadest Asia-Pacific share index outside Japan rose by 0.28%. This is its best performance since mid-June. Japan's Nikkei?was 1.5% higher and set to gain over 5% for the week. John Sidawi is senior portfolio manager at Federated Hermes for fixed income. He said that the markets have been puzzling in recent months because of the disconnect between geopolitical uncertainties and asset prices volatility. For now, the markets seem to be willing to accept a considerable amount of uncertainty before demanding higher premiums. This equilibrium is not likely to last forever," Sidawi stated. Investors could be forced to leave the sidelines if there is a significant escalation of conflict or a clear road toward resolution. This could trigger a larger volatility reaction than what current market prices suggest. YEN STUCK IN INTERVENTION LOOP The yen is at 159.40 against the dollar. It's close to 160, which traders think could spark another round of yen purchases from Tokyo after the joint intervention with the U.S. ended in July. The idea that the Bank of Japan might finally start to support the yen has gained traction among traders, who have priced in the possibility of a rate increase next month. However, investors could be disappointed if they leave the meeting of September feeling that the BOJ was not aggressive enough. Padhraic G Garvey is the head of global rates at ING. He said that the yen was weak because of "a Bank of Japan which remains uber-cautious and whose policy rate?remains too low." Padhraic noted the yen has returned to 160 levels, as the underlying problems remain. Garvey said that rate increases can help to ease this tension. The sooner they are implemented, the better. While that may be seen as a negative for the economy it is also a decision. Do you think it's important to protect the yen or not? Gold was down 0.8% at $4,313 an ounce in?commodities as traders locked in profits following the yellow metal's highest level since early June the previous session due to dimming expectation of a short-term increase. CME FedWatch showed that traders now price in a 35% probability of a Fed hike next month, down from 55% one week ago. This led to an increase in U.S. Treasuries, despite a disappointing auction of 30-year bonds.
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Finland bans certain parts of Baltic Sea after Latvia shoots drones in its airspace
On Friday morning, fighter jets participating in a NATO air defense mission reportedly'shot down' a drone which had entered the airspace of Latvia - a member state of NATO and European Union. A threat to airspace in the vicinity of Russia was also raised by the armed forces. Finland, a member of the EU and NATO that shares a border in part with Russia, has temporarily restricted aviation and maritime traffic to certain areas within the eastern Gulf. This is a precautionary move against drones. The armed forces of Latvia did not immediately disclose any details about the drone's origin or its origin. As Moscow and Kyiv continue their exchange of attacks following Russia's full scale invasion of Ukraine, in February 2022, neighbouring countries to Russia and Ukraine periodically issue air threat warnings and down drones. Alexander Drozdenko, the regional governor, said in an early Friday morning telegram that Russia had shot down 15 drones overnight. The region is located near Finland and Estonia, and includes St Petersburg, which is the second-largest city of the country and a major hub for exports. The?NATO countries in northern Russia are increasing security around dams and power plants, as well as natural gas infrastructure. This is a sign that they're growing more concerned about a possible "false-flag" attack by Moscow using Ukrainian drones. (Reporting and editing by Tom Hogue, Raju Gopalakrishnan, and Jekaterina Glubkova from Tokyo)
Trump's controversial plan to price minerals is met with skepticism from the G7 and a divided industry
According to diplomatic sources, and an analysis of corporate policy suggestions, the Trump administration's plan to boost vital minerals production through price regulation is being met with skepticism from G7 allies and a divided mining sector. Negotiations for a Western Trading bloc are also stumbling due to concerns over cost and governance. First proposed by the U.S. Vice President JDVance announced the trading bloc in February. It aims to wean the West off China. China became the largest mineral producer by operating on a loss, and lowering prices for building blocks used in semiconductors, computers servers, military equipment, and countless other products. Artificially low prices of cobalt and lithium have made it harder for Western mining competitors to compete. This has inhibited new development, and driven some companies out. Beijing has used this tactic repeatedly in other industries. As envisioned, the trade bloc would look at price supports, market standard, subsidies, and guaranteed purchases in order to financially support production across several countries. Vance stated that the measures could be enforced through "adjustable duties to maintain pricing integrity." Currently, many niche minerals that are critical to tech and defence are traded without transparency, and they're linked to Chinese prices. This is because China dominates the market. Three sources said that since Vance's announcement G7 members have been pushing back against U.S. trade representative Jamieson Greer and have cooled their position on the idea the bloc would rely on a pricing scheme derived by a Pentagon AI model.
According to European officials, the main concerns are who will pay for premiums on minerals, where these subsidies should be placed in the supply chain, and how governance will work.
More than 230 submissions from miners, refiners, and customers to Greer's Office show that the U.S. Mining Industry is divided over what Greer should do to encourage allies.
The concerns of both allied and corporate interests highlight the difficulty in reinventing how minerals are purchased and sold. More than a dozen consultants and analysts said that the final shape of the trade bloc could have a long-term impact on minerals markets.
Ashley Zumwalt Forbes, an investor in minerals who managed the U.S. Department of Energy’s batteries and essential minerals portfolio under the former president Joe Biden, said: "It's a very difficult thing to do. I'm glad I'm not doing it." This topic will dominate the discussion when G7 members gather in France this week. Western countries are faced with the challenge of diversifying away from China by building up an entire supply chain, from mine to final product. A draft U.S. plan, created using an AI-based pricing program developed by the Pentagon's Defense Advanced Research Projects Agency, has been sent to the White House. The National Security Council, along with U.S. officials, will brief G7 allies in the near future on the contents of the proposal.
European officials and representatives of the industry said that they would rather study the long-term impact of price support than make a quick deal, which is in contrast to the American's more rapid pace. Sources say that the Trump administration is hesitant to accept the French proposal for a permanent administrative secretary within the International Energy Agency or OECD, to track G7 initiatives regarding critical minerals, as the presidency rotates. The United States wants to avoid multilateral discussions and instead forge quick concrete bilateral agreements, then expand them. This is a source of confusion.
Washington's push for a bi-lateral approach appears to be a change in strategy from Vance's plan, first presented earlier this year.
Greer, who spoke to reporters at the Organisation for Economic Co-operation and Development's (OECD) Ministerial Meeting in Paris in early June, said: "We are trying to take some of these ideas and turn them into a deal."
Greer stated that the United States would use price support "to protect production critical minerals and derivatives". We would like to introduce it gradually. ... If other countries wish to join us, they are welcome to do so." Washington wants to make a proposal to Japan and to the European Union for bilateral agreements that are legally binding before the end June, according to two sources who have been in touch with the issue. This proposal will be the first step in implementing the action plans that were announced earlier this summer, with Japan and with the EU. Sources said that the first binding agreement may cover five to ten minerals. Minerals under consideration include graphite, tungsten and antimony. All are subject to Chinese export restrictions or bans.
PRICE SETTING According to the Trump administration, prices will be set using Open Price Exploration (OPEN) AI Metals, a program created by DARPA. This program uses DARPA's Open Prices Exploration for National Security (OPEN), which aims at calculating what metals should cost when labor, processing, and other costs are taken into account, and Chinese market manipulation is excluded. One source stated that European allies are against the idea of using a AI pricing system created by Washington. They cite concerns over the U.S. exerting too much influence on the pricing in the EU. One person said that Europeans are looking for a wide range of tools, and "agile governance", to determine the best way to implement these measures in any given mineral or value chain. "For Europe, a price index that is based on actual deals on the European market would be ideal." The question is how we can make these opaque price mechanisms more transparent, market-driven and less susceptible to manipulation, said Nicola Beer, who oversees mineral financing at the EU controlled European Investment Bank.
Different?parts of the supply chain and products in different sectors are shaped differently by pricing mechanisms. This adds complexity." EIT RawMaterials, an EU-funded agency that works with the digital platform Metalshub in order to create indices independent of Chinese government pricing and give clearer signals to foreign investors about profitability. Indexes that go beyond Europe could include United States, Australia or Canada.
The fact that few western nations import minerals in their raw form or with minimal processing could complicate the enforcement of any trading bloc. For example, Lithium Carbonate is not regularly imported into the U.S. but cell phones that contain it are.
James Willoughby is a metals consultant at WoodMac.
Greer said he would use the comments from miners and clients in a letter to "help guide policies for continued negotiations with Washington's Allies". The responses show that respondents are generally in agreement that the bloc should concentrate on niche minerals instead of copper or other widely traded metallics, and should also focus downstream products such as cell phones and laptops.
They disagree, however, on the best way to regulate minerals prices. Several prominent mining companies and trade groups have recommended against setting prices.
Blake Harden, managing director at EY focused on trade policies, said that there was a lot of nervousness among all parties about the different options and the impact they could have on different parts in the supply chain. General Motors, who is building North America’s largest lithium mine, with Lithium Americas; Umicore; platinum miner Sibanye Stillwater; the U.S. Chamber of Commerce and MP Materials, which was awarded the U.S. Government’s only price floor in July last year, all made different proposals. The National Mining Association (US industry trade group) advised Greer to avoid price-fixing, and instead focus on other incentives and tax credits.
Rich Nolan, CEO of the trade group, said that while market interventions, such as pricing mechanisms, may play a part in certain circumstances. However, incentive-based methods are more suited to address challenges facing the mining industry. (Reporting from Julia Payne and Ernest Scheyder, in Evians les Bains and Houston respectively; additional reporting from Leigh Thomas and Jarrett Renshaw, in Washington and David Lawder in Paris; editing by Veronica Brown & Claudia Parsons).
(source: Reuters)