US Dollar

The health of banks remain in focus on Wall Street, as traders monitor Congressional hearings on the recent bank failures. Wall Street seems to accept that pain is an inevitable product of the Federal Reserve’s monetary tightening designed to break the back of inflation. Financial markets were marginally lower, awaiting new data points on inflation, rates or the health of the banking sector. For more detailed market commentary go to StoneX Market Intelligence, https://my.stonex.com/.

Gold has attempted to breach the $2,000 mark over the past two weeks as bond yields sank and banks failed. Was this a reminder of the Metal’s safe-haven status? While the Federal Reserve will continue to reduce the size of its balance sheet, selling bonds or at least not rolling them over at maturity, it added $394 billion, or 5% of its balance sheet holdings over the past three weeks as a lender of last resort to calm markets given banking failures. For more detailed market commentary go to StoneX Market Intelligence, https://my.stonex.com/.

Fears of more failures in US regional banks were allayed after Silicon Valley Bank was purchased by First Citizens BancShares, Inc., easing contagion fears. There’s a cost to the bank failures – many of which were the product of poor decisions. But there’s a bigger cost to be paid by the erosion of confidence in the nation’s banking system. Investors hope that the recent actions by regulators have come a long way toward reinstating confidence in the banking system, although we still likely have some bumpy times ahead. For more detailed market commentary go to StoneX Market Intelligence, https://my.stonex.com/.

Financial markets remain concerned about Deutsche Bank even after assurances from authorities, with a flight to safety evident in US bonds and the Dollar. Deutsche Bank shares are down around 12% this week, after their credit default swaps spiked unexpectedly today (an indicator of stress). While no story has accompanied the move it nonetheless spooked markets. For more detailed market commentary go to StoneX Market Intelligence, https://my.stonex.com/.

Vincent Deluard argues that the resilience of the economy and the tightness of the labor market is bad news for a stock market whose rich valuations rely on low rates and record margins. Earnings downgrades and missed forecasts could trigger stocks to move lower.

In this week’s edition, we discuss the yen, gold, dollar and yields

Arlan Suderman notes that financial markets continued to rally after yesterday’s 25 basis point rate hike, as the central bank suggested an end to rate hikes is near by removing a line from its statement about "ongoing increases." Federal Chair Jerome Powell did his job, keeping Federal Open Market Committee (FOMC) members on the same page, while speaking with confidence regarding the economy and the banking sector. Will announcing a peak in rates be a mistake?

Rhona O'Connell notes that Gold edged higher before and during yesterday’s FOMC meeting, closing on the $2,000 per ounce level last seen in august 2020, and 14% up year-to-date. Gold will end the year at $2,070 per ounce in the view of O'Connell, StoneX Head of Commodity Market Analysis for EMEA & Asia.

Natalie Scott-Gray discusses the importance of Peru’s reopening of key mining corridor after a period of significant political volatility: the countries mines are responsible for 12% of global copper output, or 2.8 million tons in 2023; in addition, Peru produces significant lead, zinc, tin, and silver.

Suderman says that the European Central Bank hiked its benchmark interest rate by 50 basis points as expected this morning but gave no signals about future moves. US economic data remains resilient. Markets welcomed continued efforts to control inflation, and another bank bailout (but bigger). How the Fed responds with rate rises is a key focus.

Natalie Scott-Gray discusses risks of Russian growing exclusion from global Aluminium markets, specifically Glencore’s decision to cut ties in 2024, and President Biden’s policy focus.

Arlan Suderman discusses his belief that the greater threat to our economy is for inflation to become deeply engrained, if the Fed backs off its focus on this problem, setting in motion a series of events that ends up creating long-term pain for everyone.

Natalie Scott-Gray discusses how a fundamental weakness in demand has caused a year-to-date retrenchment in the base metal index. Some explanations include souring macro demand conditions in the US, and weaker than expected economic forecasts from China after its annual ‘Two Sessions’ meetings (annual plenary sessions of the National People's Congress and of the Chinese People's Political Consultative Conference.)

Arlan Suderman notes that calm is restored on Wall Street for now, as worries about bank failure contagion ease. Banks failures brought a silver lining: diminished expectations for rate rises. However, consumer price inflation day is still a problem, just as the Fed’s freedom to raise rates might be limited. Volatility and bond yields moderated, but for how long?

Rhona O’Connell took a look at the collapse of Silicon Valley Bank (SVB), a bank that concentrated on start-up companies in the technology sector and went into receivership last Friday. She argued that Gold benefited from a surge in buying, rising to $1,909 per ounce emphasizing its long-term role as a hedge against risk.

Arlan Suderman argues that payroll numbers were stronger than expected and so bearish for rates, but rising unemployment and trimming wage gains were more encouraging. Tuesday’s CPI number now looks like a tie-breaker for rate hike doves and the hawks, both of which could take some ammunition from the jobs report to argue for rate moves. All eyes on Tuesday’s inflation report.

Analysts Bruno Santos and Isabela Garcia argue that the natural gas market has been one of the most impacted by the war in Ukraine, reshaping global trade flows of the commodity, and causing price volatility.