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Learn to love inflation with MORNING BID AMERICAS
What's important in U.S. and Global Markets Today By Mike Dolan, Editor at Large, Finance and Markets The markets are being hit by several factors: war, inflation rate increases, tech jitters, and interest rate rises. While Donald Trump might "love inflation", markets and the wider public disagree. Trump may have erred and was likely nodding to the fact that May's CPI reading for core was slightly lower than expected. Investors trying to find some optimism in the face of headline inflation as high as 4,2% are having a tougher time than Trump. They will also have to take into account today's update on May producer prices. Below, I'll go into more detail. Check out my column about what low-hanging fruits the EU could pick in order to bring about a global euro. Listen to the latest Morning Bid podcast. Subscribe to the Morning Bid daily podcast and hear journalists discussing the latest news in finance and markets seven days a weeks. LEARNING TO LOVE INFLATION The oil prices fell on Friday, after a new round of military exchanges overnight between the U.S.A. and Iran, which extended their "tit-fortat" strikes for a second consecutive day. The broader tech and chip sectors are struggling to gain traction as the massive SpaceX IPO is about to be released. The major U.S. indexes closed lower on Wednesday, as chipmakers continued their recent declines. The SOX chip index fell back by over 3%. Wall Street futures rose?before Thursday's bell, but. Oracle's overnight trading plunged by?9% after its earnings report on Wednesday. This comes just a week after Broadcom also experienced a post-earnings slump that set nerves jangling. Oracle's tensions were centered around its growing debt as it borrowed more to build out its AI infrastructure. The European Central Bank will announce its long-awaited interest rate hike on Thursday. This is likely to add to the anxiety about borrowing costs. The Iran war has a negative impact on the ECB's inflation forecasts. The markets are braced to see two more ECB actions later this year. The markets will focus on a possible Bank of Japan rate hike and a Federal Reserve meeting that is likely to be hawkish next week. The '10-year Treasury Debt Auction on Wednesday was a good one, with a decent amount of demand. Kevin Warsh's first meeting will be a difficult one. Chart of the Day The FIFA World Cup, co-hosted this year by the United States of America, Canada and Mexico, begins on Thursday amid great excitement and controversy about everything from U.S. Visas to sky-high tickets prices. Vacation rental bookings are a good indicator of the economic impact of hosting the World Cup. Watch today's events Weekly?jobless claim (8:30 am EDT), U.S. PPI for May (8:30 am EDT). * U.S. 30 year bond auction (1 pm?EDT). * ECB interest rate decision (8:15 a.m. EDT) Want to receive "Morning bid" in your email every morning? Subscribe to the newsletter by clicking here. Follow us on LinkedIn, X and ROI. The opinions expressed by the author are their own. These opinions do not represent the views of News. News is committed to the Trust Principles and will always maintain its integrity, independence and neutrality.
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Copper falls to a three-week low due to fund sales and concerns about the Middle East
The copper price fell to its lowest level in three weeks as the U.S. and Iran continued their attacks. Funds liquidated positions on concerns about rising interest rates, weaker economic growth worldwide, and softer metals demands. The benchmark three-month copper price on the London Metal Exchange fell 0.8% to $13,407 per metric tonne by 0925 GMT. It had earlier reached $13,378, which was its lowest since May 20. On Thursday, the U.S. traded air strikes with Iran for a second day in a row, undermining an already fragile ceasefire. Copper's decline is driven more by macro-headwinds than fundamentals. "Escalating tensions are fueling inflation fears and rate increase expectations," said EwaManthey, commodities analyst at ING. Copper is likely to be under pressure in the near future unless energy prices stabilise or expectations of rate changes are lowered. LME copper is down about 6% from?May 13 when it reached its highest level in 3 1/2 months. This was due to a 'pile-up of funds into the market because of'supply issues and bullish signals. Traders said that part of the recent weakness was due to funds liquidating their long positions. The Yangshan Copper Premium fell by 19% in the last 2-1/2 weeks, highlighting the lacklustre demand for metals in China's top consumer. This reflects the demand for imported copper into China and has risen to $59 per?ton. The Shanghai Futures Exchange's most traded copper contract fell 1.3%, to 103.160 yuan (15,223) per ton. It had previously reached its lowest level since May 8. The losses in copper have been cushioned by the speculation that U.S. tariffs could be imposed on imported?refined? copper. This has led to a premium for U.S. metal, and a flow of material into the U.S. resulting in supply shortages elsewhere. Stocks available in warehouses registered with the LME According to LME data, the number of tons has fallen by 37% in two months to 226,975 tonnes. LME aluminium increased 0.3% to $3.475 per ton, as a result of continued concerns about a?prolonged conflict that could create shortages because?the Gulf represents about 9%?of global melting capacity. Nickel fell 0.3% to $17.620, while tin slipped 0.2% to $51,885.
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Singapore's oil products inventories fall to a near 13-year low
Official data on Thursday showed that oil product inventories in Asia's main trading hub Singapore fell to their lowest level?in almost 13 years. This was due to a'sharp' decline in residual fuel stocks as the Middle East conflict continued. Enterprise Singapore's data shows that the combined onshore oil products stocks fell to 34.41 millions barrels during the week ending June 10. This is the lowest level since July 2013. The oil inventories at global storage hubs are shrinking, as Middle Eastern shipments continue to be curtailed by the U.S. - Iran?war. In the week ending June 10, inventories of residual fuel, the oil product that is stored in Singapore's storage tanks and typically used to fuel ships or refineries, totaled 14.84 million barils. This was the lowest level in nearly eight years. The net imports of heavy distilates dropped by 36.3% from week to week, but volumes from the Middle East did not increase. Sparta Commodities analysts stated that recent flows were?stabilised' by U.S. exports, and the repositioning of vessels. However, these are only temporary support. They added that "Inventories are being depleted, key 'hubs are approaching operational minimums and geopolitical risk around the Strait of Hormuz remains unresolved." The fuel oil industry expects that residual fuel stocks will rebound as a result of the increased supply from the West. While middle distillate stock levels continued to fall, they are now at a three-month-low, while net exports for both jet fuel and diesel increased week-on-week. Singapore's diesel/gasoil, jet fuel/kerosene and kerosene stock levels were around 6.9 million barrels. This is down from 7.3 millions barrels one week ago. Diesel/gasoil exports increased by nearly five-fold compared to a week ago, while total imports fell 42%. Imports were dominated by cargoes from India and South Korea. Sources from the region said that more Indian barrels will be arriving in Singapore this June. The narrowing of the east-west spread makes it more profitable for sellers who send their cargoes into Asia rather than west?of Suez. Exports increased by 56% in volume week-on-week. Volumes to regional destinations like?the Philippines and Vietnam, Australia, and Malaysia remained robust. Jet fuel exports increased by nearly 8%. However, imports from South Korea, Malaysia and other countries also appeared. The light distillate stock, which includes naphtha and gasoline, has rebounded at a two-week peak of?12.66 millions barrels. The main sources of gasoline imports were Saudi Arabia and India. Exports were mainly to Australia, Indonesia, and Malaysia, but there were also cargo outflows from Mexico.
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Sources say that Adani, Vedanta and Reliance are all part of India's effort to reduce China's dependence on rare earths.
According to two sources familiar with the matter, Indian industrial 'groups Reliance Vedanta, and Adani have shown an interest in developing a facility to 'process' Andhra Pradesh State’s significant reserves. One of the sources said that New Delhi is looking to reduce India's dependency on China for rare Earths. The three companies have expressed an interest in setting up rare-earth facilities in the south state. Sources declined to identify themselves as they weren't authorised to talk to the media. According to a draft document, Andhra Pradesh has 211 millions metric tons in beach sand minerals, including rare Earths, spread across 16 coastal deposits. According to the Geological Survey of India, India's rare earth ore reserves total 482,6 million tons. RARE EARTH EMBITIONS New Delhi is stepping up its efforts to build a domestic rare earth mining and processing capacity and to manufacture magnets, while Andhra Pradesh wants to attract 500 billion rupees (5.2 billion dollars) in rare Earth and titanium investment over the next decade. Plans were outlined in a draft document by the government. Emails seeking comment from the Andhra Pradesh Government, Vedanta Ltd, Adani Enterprises Ltd, Vedance Industries Ltd, and Reliance Industries Ltd were not answered. Andhra Pradesh is one of four states that were identified in the February federal budget as being a candidate for development of "corridors", which would cover mining, processing, and magnet production. This initiative was launched after New Delhi approved in November a programme worth 73 billion rupees to support the manufacturing of rare earth magnets. Permanent magnets are used in electric vehicle motors and other applications that require rare?earth. India has a large amount of rare earth minerals, but it does not have the industrial scale facilities to process them into high purity. CAPITAL INCENTIVES AND OTHER MEASURES Andhra Pradesh will?issue tenders to rare earth facilities once it receives cabinet approval of its 'rare earth corridor policy. This is expected in a month. Sources said that the state plans to offer capital incentives and extra benefits for projects with an investment of at least 10 billion rupees. Andhra Pradesh has been courting large investments. It has attracted companies such as Google and ArcelorMittal Nippon Steel and hopes to secure $1 trillion by 2029. (Reporting and editing by Mayank Bhadwaj, David Holmes and Sarita Chaganti)
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Gold recovers from a six-month low, but fears of rate hikes cap gains
Investors covered their short positions on Thursday and gold prices rose, rebounding from the?a six-month low. However, concerns about higher inflation rates in the U.S. and rising interest rates have limited gains. Gold spot rose 0.6%, to $4.097.01 an ounce at 836 GMT. It had fallen earlier in the session to its lowest level since November 21, U.S. Gold Futures for August Delivery were down 0.4% to $4,118. Ross Norman, an independent analyst, said that gold is "clearly" oversold right now. It remains to be determined whether or not this is a real recovery of the metal as such or merely short positions taking profits. The U.S. has traded blows with?Iran for the second day in a row. President Donald Trump threatened to launch more strikes if Tehran did not agree immediately to a?peace deal. Since the U.S. and Israel war against?Iran began in late February, spot gold prices have dropped by more than 22 percent. This was followed up by an increase in oil price. A rise in crude oil prices may accelerate inflation, and increase interest rates for longer. Gold is often viewed as an inflation hedge, but higher interest rates can weigh down the metal. Data released on Wednesday revealed that U.S. consumer prices increased at their fastest rate in three years during the month of May, thanks to the surge in energy-related product prices. A majority of economists polled in a recent survey expect interest rates to remain unchanged in this year. According to CME Group’s FedWatch? tool, traders currently price a 67% probability of an increase in U.S. interest rates in December. Carsten Fritsch, an analyst at Commerzbank, said that the market is now certain that the Fed will raise interest rates by the end of this year. If next week's Fed meeting doesn't signal an increase in interest rates, gold prices could start to recover. Investors are now awaiting the May producer price index due at 1230 GMT in order to gauge the Fed’s monetary policy. Spot silver increased 1.3%, to $64.49 an ounce. Platinum gained 0.8%, to $1678.08. Palladium rose 3%, to $1249.58.
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Saudi crude oil supply to China remains at record low
Saudi Arabian crude oil sales to China will likely remain at record lows this month as the high 'prices' in the wake of the U.S. and Israeli war on Iran continue to impact demand. Market participants closely monitor the allocations as a measure of Chinese demand. They indicate that refiners are reluctant to import barrels at high prices after run cuts, and because they have exhausted their domestic stocks. Saudi Aramco will ship 12 million barrels to China customers for July loading. This is about 387.096 barrels a day. Sources'requested anonymity because they weren't authorized to speak with the media. According to?sources, Sinopec is the largest refiner in the world by processing capacity. It has not bought any Saudi crude since the second month. Rongsheng Petrochemical, another major refiner was also buying at much lower levels than before the war. Aramco's July 'official selling prices' to Asia were cut by $6 per barrel compared to the previous month. However, they still remained much higher than pre-war levels. Refiners have cut back on runs in China due to high crude prices and low fuel demand, which led to refining losses. This resulted in the lowest oil imports for a decade in May. Aramco, Sinopec and Rongsheng didn't immediately respond to comments. (Reporting and editing by Christopher Cushing in Singapore, Thomas Derpinghaus and Siyi Liu)
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Fuel stations run out of fuel in Crimea after a new night of Ukrainian drone attacks
Witnesses reported that fuel stations in the Russian-held Crimean Peninsula?were?out of petrol on Thursday as the escalating Ukrainian campaign to cut off supply lines into the peninsula?. A? A witness in Sevastopol said that most petrol stations in the city were out of fuel. Supplies are struggling to keep up even with the recent rationing. Another said that in Yevpatoriya's resort town, there was a queue of people waiting outside the only petrol station. Ukraine has intensified drone strikes against supply lines for the peninsula that Russia captured from Kyiv in 2014. Local authorities have implemented fuel rationing, and some food is also in short supply. The Russian-backed governor of Sevastopol, Mikhail Razvozhaev, said on Wednesday that the plans to distribute rationed fuel?had been pushed back because trucks were unable to deliver the fuel into Sevastopol, due recent Ukrainian strikes along supply routes. Fuel is mainly delivered by rail and road to Crimea via the Russian territories in the north that Moscow took over in 2022. Drone attacks have disrupted these routes more and more. Fuel was previously delivered to Crimea via barge from an oil terminal located in the city Feodosia. However, supplies have been cut since Ukraine attacked the terminal in April. The governor of Sevastopol who was installed by Moscow said that Ukrainian drones caused a light amount of damage over night, and 33 were downed. The Russian-backed Governor of the Moscow-held Kherson region which borders Crimea on the north said that Ukraine had targeted bridges and caused some damage. Authorities reported that Kyiv struck southern Russia over night, causing damage, including an 'incident at the Afipsky Oil Refinery, which has since been put out. The Adygea governor also reported damage to civil infrastructure in the area. Reporting by Felix Light in Sevastopol, Yevpatoriya; Editing by Alex Richardson
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South Korea anticipates favorable outcome following Lee's EU Steel Request
A senior South Korean adviser to the president said that the European Union would give maximum consideration to South Korea’s request for favorable?treatment of their?steelmakers, under the new import regime. The request was made by the South Korean president Lee Jae Myung during a Wednesday meeting in Brussels with Antonio Costa, President of the European Council and Ursula von der Leyen, President of European Commission. Kim Yong Beom, a presidential policy advisor, told a press briefing that Lee had asked the EU to "consider" South Korea's status as a strategic?partner and a?partner in a free trade agreement. Kim said that the EU had stated it would?consider our request as far as possible", adding South Korea was expecting a better outcome than other countries. Kim stated that South Korea made "significant progress" during the talks between its minister of trade and the EU's trade commissioner regarding steel quota volume. The European Parliament approved plans in May to reduce tariff-free imports of steel by almost half, from levels in 2024 to 18.3 millions metric tons per year. Tariffs of 50% will be applied to volumes over that level. South Korea's largest steel export market is the EU. Kim said that South Korea exported 3.24 million tonnes of steel to the EU last year, out of a total of 28.25 millions tons. Kim reported that Lee raised other economic issues, such as cooperation in semiconductors, defence and artificial intelligence, with EU leaders. Heejin Lee and Joyce Lee, Sonali Paul and Ed Davies edited the report.
Northern Hemisphere's record winter heat slashes gas usage: Kemp
The northern hemisphere has experienced the warmest winter season on record, with the unusual warmth concentrated around the Atlantic Basin, which has produced a massive surplus of gas and slump in rates because October.
Surface area temperature levels on land were +2.65 ° C above the 20th century average in between December and February, according to data assembled by the U.S. National Oceanic and Atmospheric Administration (NOAA).
Chartbook: Northern hemisphere winter 2023/24
Tape-record warmth in the winter season of 2023/24 beat previous highs of +2.44 ° C in 2019/2020 and +2.61 ° C in 2015/16 - likewise winters characterised by surplus stocks and slump in gas rates.
Global warming, strong El Nino conditions in the Pacific, a. highly favorable North Atlantic Oscillation, and the solar. activity cycle moving towards its 11-year peak, all contributed. to exceptional heat this winter.
THE United States AND CANADA
Europe has received most attention because of the local. gas market's disruption following Russia's intrusion of Ukraine,. but the most irregular weather happened in The United States and Canada.
Temperatures throughout The United States And Canada were +3.43 ° C above the. long-run average in between December and February ( Climate at a. glimpse, National Centers for Environmental Details, March. 2024).
North America experienced record warm anomalies in both. December (+4.66 ° C )and February (+3.59 ° C )slashing heating. need for both gas and gas-fired electricity.
U.S. gas stocks started the heating season just 64. billion cubic feet (bcf) (+2% or +0.24 standard deviations). above the previous 10-year seasonal average on Oct. 1.
Stocks were still just 129 bcf (+4% or +0.46 standard. variances) above the 10-year seasonal average at the end of. November.
The surplus had swelled to 307 bcf (+10% or +1.15. standard deviations) by the end of December following a run of. abnormally warm weather condition.
Cooler temperature levels triggered the surplus to narrow temporarily. in January, especially throughout the really cold spell between. Jan. 13 and Jan. 22.
But the surplus swelled again to 519 bcf (+29% or +1.31. basic variances) by the end of February as temperatures. reverted to well above typical.
With moderate weather condition continuing into March the surplus had. puffed up to a huge 606 bcf (+35 or +1.35 requirement. deviations) by March 8.
U.S. front-month futures prices averaged nearly $3.19 per. million British thermal systems in October, putting them in the. As soon as inflation is, 13th percentile for all months because 1993. considered.
By February typical inflation-adjusted rates had actually been up to. a record low of $1.80 as persistent heat and the unrelenting. develop of surplus inventories sent the marketplace into a tailspin.
EUROPE AND ASIA
Europe likewise experienced a very warm winter, with. temperatures +2.73 ° C above the long-run average, making the. winter season the 2nd warmest on record after 2019/20 (+3.32 ° C)
. A highly positive North Atlantic Oscillation directed. strong westerly winds into Northwest Europe bringing lots of. moisture-laden and warm air from the Atlantic.
The temperature level anomaly may not have been as extreme as. North America, but combined with prices well above the. pre-invasion average, it was enough to leave the area with. record seasonal inventories by the end of February.
Stocks across the European Union and the UK. started the heating season 167 terawatt-hours (TWh) (+18% or. +1.70 basic deviations) above the 10-year average on Oct. 1.
By Feb. 29, the surplus had swollen to 269 TWh (+60% or. +2.08 basic deviations), according to information from Gas. Infrastructure Europe.
Europe's front-month futures balanced almost 46 euros per. megawatt-hour (88th percentile for all months considering that 2010 in genuine. terms) in October, however had actually slumped to an average of simply 26. euros (48th percentile) in February.
By contrast to The United States and Canada and Europe, winter temperature levels. throughout Asia were closer to regular, a minimum of for the last two. years.
Asia's temperatures averaged +1.80 ° C above the long-lasting. average, but that made it only the 10th hottest winter season on. record.
THOUSANDSES OF GAS
The United States And Canada, Europe and Asia combined represented practically. two-thirds of worldwide gas intake in 2022 ( Statistical. evaluation of world energy, Energy Institute, 2023).
North America and Europe alone represented 40% of. around the world consumption, with a heavy weighting towards the winter season. months because of heating demand.
Exceptional heat around the Atlantic Basin in winter. 2023/24 therefore occurred in exactly the area to maximise the. influence on gas usage, stocks and costs.
When historians ask why Russia's invasion of Ukraine and. sanctions enforced in reaction did not trigger shortages and a more. extended and extreme spike in costs, they are likely to point out. extremely warm winters in both 2022/23 and 2023/24 rather. than policy actions as the primary factor.
Europe's gas customers got really fortunate in the winter season of. 2023/24 and have actually seen costs normalise. For the same factor,. Asia's importers are now taking advantage of enhanced schedule. and much lower costs.
On The Other Hand, North America's manufacturers have been pushed into. a deep downturn as they have a hard time to sell in a market awash with too. much gas.
Next winter season is most likely to be chillier in The United States and Canada and. Europe.
In the meantime, lower prices will result in slower or no. production growth in the United States, which must cause the. market to tighten up gradually over the next 12 months.
Associated columns:
- Europe gets lucky with a mild, windy winter season (March 13,. 2024)
- Europe's mild winter leaves gas stocks at record high. ( March 7, 2024)
- El Niño pushes real U.S. gas prices to multi-decade low. ( February 16, 2024)
- Europe's inflamed gas stocks drive costs lower (February. 13, 2024)
John Kemp is a market analyst. The views expressed. are his own. Follow his commentary on X https://twitter.com/JKempEnergy.
(source: Reuters)